Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
dated September 30, 2004
FOR THE ACQUISITION OF
ALPHA NATIONAL TECHNOLOGY SERVICES, INC.
BY
HALIFAX CORPORATION
AGREEMENT AND PLAN OF MERGER
Table of Contents
Section 1: Defined Terms 1
Section 2: The Merger 1
2.1 The Merger 1
2.2 Effective Time 1
2.3 Effect of the Merger 2
2.4 Articles of Incorporation and Bylaws 2
2.5 Directors and Officers 2
2.6 Merger Consideration; Conversion of Capital Stock 2
2.7 Delivery of Merger Consideration and Surrender of Certificates
3
2.8 Merger Consideration Adjustment and Closing Balance Sheet 3
2.9 Deferred Merger Consideration 4
2.10 Further Action 6
Section 3: Representations of the Company and the Shareholders 6
3.1 Organization 6
3.2 Authority; Non-Contravention 7
3.3 Capital Stock and Ownership 8
3.4 Financial and Corporate Records 9
3.5 Compliance with Law; Permits 10
3.6 Financial Statements 10
3.7 Assets 10
3.8 Obligations 11
3.9 Operations Since the Latest Balance Sheet Date 11
3.10 Accounts Receivable 12
3.11 Tangible Property 12
3.12 Real Property; Environmental Laws 12
3.13 Software and Intangibles 13
3.14 Contracts 14
3.15 Employees and Independent Contractors 16
3.16 Employee Benefit Plans 17
3.17 Customers and Suppliers 19
3.18 Taxes 19
3.19 Proceedings and Judgments 21
3.20 Insurance 22
3.21 Questionable Payments 22
3.22 Related Party Transactions 22
3.23 Brokerage Fees 22
3.24 Investment Matters 22
3.25 Full Disclosure 24
Section 4: Representations of Buyer and Merger Sub 24
4.1 Organization 24
4.2 Authority; Non-Contravention 25
4.3 Buyer's Stock 25
4.4 Indebtedness 25
4.5 Consents 26
4.6 SEC Filings 26
4.7 Questionable Payments 26
4.8 Brokerage Fees 26
4.9 Full Disclosure 27
Section 5: Closing Deliveries 28
5.1 The Company's and the Shareholders' Obligations at Closing
28
5.2 Buyer's and Merger Sub's Obligations at Closing 29
Section 6: Certain Rights and Obligations of Buyer and the Shareholders
after Closing 30
6.1 Restrictions on Dispositions of Buyer Common Shares 30
6.2 Cooperation with Buyer and the Surviving Corporation 30
6.3 Taxes 30
6.4 Transfer Taxes 31
6.5 Reportable Transactions 31
6.6 Cooperation on Tax Matters 32
6.7 Disposition of Company Employee Benefit Plans 32
Section 7: Indemnification 33
7.1 The Company's and Shareholders' Indemnification 33
7.2 Indemnification by Buyer 33
7.3 Indemnification Procedures 34
7.4 Limits on Indemnification 34
7.5 Setoff 35
Section 8: Other Provisions 37
8.1 Publicity 37
8.2 Fees and Expenses 37
8.3 Notices 37
8.4 Survival 37
8.5 Reliance; Interpretation of Representations 38
8.6 Entire Understanding 38
8.7 Parties in Interest; Assignment 38
8.8 Waivers 38
8.9 Severability 38
8.10 Counterparts; Facsimile 38
8.11 Section Headings 39
8.12 References 39
8.13 Controlling Law 39
8.14 Arbitration; Jurisdiction and Process 39
8.15 No Third-Party Beneficiaries 40
8.16 Neutral Construction 40
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made and
entered into on September 30, 2004 by and among Alpha National
Technology Services, Inc., a Texas corporation (the "Company"), Halifax
Corporation, a Virginia corporation ("Buyer"), Halifax-AlphaNational
Acquisition, Inc., a Delaware corporation ("Merger Sub"), L.L.
Whiteside, Charles A. Harper, Morris Horn and Dan Lane (each, a
"Shareholder" and collectively the "Shareholders").
BACKGROUND
The Company is in the business of providing onsite
computer/network repairs, help desk support, and related computer
services (the "Business"). The Shareholders own, collectively, 100% of
the issued and outstanding shares of capital stock of the Company. At
Closing (as defined herein), the parties desire that the Company be
merged with and into Merger Sub (with Merger Sub surviving the merger)
on the terms and subject to the conditions set forth in this Agreement
(the "Merger"). The Board of Directors of the Company has determined
that the Merger referenced above and the other transactions
contemplated by this Agreement (such Merger and other transactions to
collectively be referred to herein as the "Transactions") are in the
best interests of the Company and the shareholders of the Company. The
respective Boards of Directors of Buyer and Merger Sub have determined
that the Transactions are in the best interests of Buyer and Merger Sub
and their respective stockholders.
INTENDING TO BE LEGALLY BOUND, in consideration of the mutual
agreements contained herein and subject to the satisfaction of the
terms and conditions set forth herein, the parties hereto agree as
follows:
Section 1: Defined Terms
Certain capitalized or defined terms used in this Agreement and
not specifically defined in context shall have their respective
meanings contained in Exhibit 1A attached hereto.
Section 2: The Merger
2.1 The Merger. At the Effective Time, subject to and upon the terms
and conditions of this Agreement and the applicable provisions of the
Texas Business Corporation Act ("TBCA") and the Delaware General
Corporation Law ("DGCL"), the Company shall be merged with and into
Merger Sub, the separate corporate existence of the Company shall cease
and Merger Sub shall continue as the surviving corporation. Merger
Sub, as the surviving corporation of the Merger, is hereinafter
sometimes referred to as the "Surviving Corporation". It is the intent
of the parties for the Merger to qualify as a tax-free reorganization
under the Code, and each party will use its reasonable efforts to
accomplish this objective which efforts shall be subject to and not
inconsistent with each parties rights and obligations under this
Agreement and such other ancillary agreements executed
contemporaneously with or in connection with this Agreement.
2.2 Effective Time. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing
Articles of Merger with the Secretary of State of the State of Texas in
accordance with the relevant provisions of the TBCA (the "Articles of
Merger") and by filing a Certificate of Merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of the DGCL (the time of such
filing with the Secretary of State of the State of Texas and the
Secretary of State of the State of Delaware, or such later time as may
be agreed in writing by the Company and Buyer and specified in the
Articles of Merger and the Certificate of Merger, being the "Effective
Time") as soon as practicable on the Closing Date. The closing of the
Merger (the "Closing") is being held at the offices of Blank Rome LLP,
One Logan Square, Philadelphia, PA 19103, and the date of this
Agreement is the "Closing Date".
2.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable
provisions of the TBCA and DGCL. Subject to the foregoing, from and
after the Effective Time, the Surviving Corporation shall possess all
rights, privileges, immunities, powers and franchises and be subject to
all the obligations, restrictions, disabilities, liabilities, debts and
duties of the Company and Merger Sub.
2.4 Articles of Incorporation and Bylaws. The certificate of
incorporation and bylaws of Merger Sub in effect immediately prior to
the Effective Time shall be the certificate of incorporation and bylaws
of the Surviving Corporation, until the same shall thereafter be
altered, amended or repealed in accordance with applicable Law.
2.5 Directors and Officers. The directors and officers of Merger Sub
serving in those positions immediately prior to the Effective Time
shall become, as of the Effective Time, the directors and officers of
the Surviving Corporation and shall remain the directors and officers
of the Surviving Corporation after the Merger until their successors
are duly elected and qualified.
2.6 Merger Consideration; Conversion of Capital Stock. The Merger
Consideration shall equal Two Million Two Hundred Thousand Dollars
($2,200,000) consisting of: (a) an aggregate number of Buyer Common
Shares equal to $1,200,000 divided by the Closing Shares Price; (b)
$500,000 in cash (the "Cash Payment"); (c) promissory notes in an
aggregate principal amount of $500,000 (each, a "Note", and
collectively, the "Notes") in the form attached hereto as Exhibit 2.6;
and (d) the right to receive the Deferred Merger Consideration,
computed as set forth in Section 2.9; provided, however, that the
Merger Consideration is subject to adjustment as provided in Section
2.8. The items listed in this Section 2.6 (without adjustment as
provided in Section 2.8.7 and excluding the Deferred Merger
Consideration) are herein sometimes referred to as the Closing Date
Merger Consideration. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holders of any shares
of Company Common Stock or capital stock of Merger Sub:
2.6.1 Company Common Stock. All of the Company Common Stock issued
and outstanding immediately prior to the Effective Time shall be
cancelled and extinguished and shall be converted into the right to
receive, upon the surrender of certificates formerly representing such
shares of Company Common Stock (each a "Certificate" and collectively,
the "Certificates"), without interest, the percentage of each of the
items other than the Deferred Merger Consideration that collectively
constitute the Merger Consideration computed by multiplying each such
item by a fraction the numerator of which is equal to the number of
shares of Company Common Stock owned by such Shareholder immediately
prior to the Effective Time and the denominator of which is the total
number of issued and outstanding shares of Company Common Stock
immediately prior to the Effective Time (with (a) the fraction for each
Shareholder referred to herein as such Shareholder's "Ownership
Interest" and (b) it being the agreement of the parties that the
Ownership Interests of the Shareholders set forth on Schedule 2.6.1
attached hereto (the "Ownership Schedule") be final and binding on the
parties for purposes of computing the portion of the Merger
Consideration (including the actual number of Buyer Common Shares and
the dollar amount of cash and Notes to be received by each Shareholder,
all of which shall be set forth on the Ownership Schedule) for which
each Shareholder is entitled pursuant to this Agreement;
2.6.2 Stock of Merger Sub. Each share of the common stock, $0.01
par value per share, of Merger Sub issued and outstanding at and as of
the Effective Time will remain issued and outstanding.
2.7 Delivery of Merger Consideration and Surrender of Certificates
2.7.1 On the Closing Date, Buyer shall deliver the Closing Date
Merger Consideration to the Shareholders against delivery to Buyer by
such Shareholders of Certificates formerly representing the Company
Common Stock, free and clear of all liens, encumbrances and third party
interests of any nature, which shares of Company Common Stock delivered
to Buyer shall constitute 100% of the outstanding capital stock of the
Company. In the event any Certificates representing shares of Company
Common Stock shall have been lost, stolen or destroyed, the applicable
portion of the Closing Date Merger Consideration shall be deliverable
against delivery of an affidavit of that fact, in customary form and
containing customary indemnities, executed by the holder thereof. The
Deferred Merger Consideration, if any, shall be payable to certain of
the Shareholders in accordance with Section 2.9 hereof.
2.7.2 Buyer shall be entitled to deduct and withhold from any cash
consideration deliverable pursuant to this Agreement to any Shareholder
such amounts as may be required to be deducted or withheld therefrom
under the Code or under any provision of state, local or foreign Law,
but Buyer must notify each such Selling Shareholder as to the amount
and timing of the deduction or withholding. To the extent such amounts
are so deducted or withheld and have been paid as required to the
appropriate taxing authority, the amount of such consideration shall be
treated for all purposes under this Agreement as having been delivered
to the Person entitled to such consideration hereunder.
2.8 Merger Consideration Adjustment and Closing Balance Sheet.
2.8.1 At or before Closing, the Company shall prepare and deliver
to Buyer (i) a balance sheet of the Company, prepared in accordance
with the Company's internal accounting procedures, as of the Closing
Date (the "Closing Balance Sheet"), and (ii) an estimate of the Net
Assets (the "Estimated Closing Date Net Assets") of the Company on the
Closing Date.
2.8.2 The Merger Consideration shall be reduced, dollar for dollar,
to the extent that the Estimated Closing Date Net Assets is less than
Zero Dollars ($0.00) (such deficiency to be referred to herein as the
"Deficiency"). The reduction in Merger Consideration in connection
with such Deficiency shall be accomplished first by a reduction of the
Cash Payment and second, to the extent necessary, by a reduction of the
principal amount of the Notes. The Cash Payment at the closing shall
be increased, dollar for dollar, to the extent that the Estimated
Closing Date Net Assets is greater than zero.
2.8.3 Within forty-five (45) days after the Closing Date, Buyer
shall cause Buyer Accountant at its sole cost and expense to (i) review
and/or conduct certain procedures upon the components of the Estimated
Closing Date Net Assets and prepare detailed statements (the "Net
Assets Statements") of its calculation of the actual Net Assets of the
Company as of the Closing Date (the "Actual Closing Net Assets"), both
of which shall be appropriately adjusted for any audit adjustments for
the year ended December 31, 2003 and (ii) deliver the Net Assets
Statements to the Shareholders. The Shareholders shall have a thirty
(30) day period to review the Net Assets Statements and during such
period Buyer shall cause the Buyer Accountant, if requested, to share
its work papers with the Shareholders and/or their professional
advisers and to make itself reasonably available to the Shareholders
and their professional advisers.
2.8.4 If the Shareholders dispute the Actual Closing Net Assets
stated in the Net Assets Statements, they shall deliver a notice to
Buyer no later than thirty (30) days after their receipt of the Net
Assets Statements (the "Calculation Dispute Notice"). The Shareholders
shall set forth in detail in the Calculation Dispute Notice the basis
for their disagreement with the calculation of the Actual Closing Net
Assets. If the Shareholders fail to deliver the Calculation Dispute
Notice within the allotted time period, the Shareholders shall be
deemed to have agreed to the calculation of the Actual Closing Net
Assets prepared by the Buyer Accountant, which calculation shall be
final, conclusive and binding upon the parties.
2.8.5 If the Shareholders dispute the Actual Closing Net Assets as
determined by the Buyer Accountant within the allotted time period, the
parties in good faith will attempt to jointly resolve any dispute
during the thirty day period following the delivery of the Calculation
Dispute Notice. If Buyer and the Shareholders can resolve their
dispute and agree upon the Actual Closing Net Assets balance, they
shall memorialize their agreement in writing and such mutually agreed
upon figure(s) shall be final, conclusive and binding upon all of the
parties.
2.8.6 If Buyer, on the one hand, and the Shareholders, on the other
hand, cannot resolve the dispute to their mutual satisfaction, Buyer
and the Shareholders shall engage the Independent Accountants to
determine the Actual Closing Net Assets balance. The costs and
expenses of the Independent Accountants shall be borne fifty percent by
Buyer and fifty percent by the Shareholders; provided, however, the
Buyer will pay the Independent Accountant and the aggregate principal
amount of the Notes shall be reduced by the dollar value of the
Shareholders' portion of such costs and expenses. To the extent that
the Independent Accountants desire the parties to this Agreement to
meet in person, the parties shall choose a mutually acceptable location
for such meeting. Each of Buyer and the Shareholders shall cause their
accounting professional advisers to provide the Independent Accountants
such of their respective work papers as may be requested by the
Independent Accountants. The Independent Accountants shall be
requested to complete their engagement within forty five days of being
retained by Buyer and the Shareholders. The determination of the
Independent Accountants shall be final, conclusive and binding upon the
parties.
2.8.7 The final determination of the Actual Closing Net Assets of
the Company on the Closing Date pursuant to this Section 2.8 shall be
referred to herein as the "Final Closing Net Assets". If the Final
Closing Net Assets is less than the Estimated Closing Date Net Assets
(a "Final Deficiency"), the Merger Consideration shall be reduced by
such difference; provided, however, that the reduction in Merger
Consideration in connection with such Final Deficiency shall be
accomplished first by a reduction of the aggregate principal amount of
the Notes and second, to the extent necessary, by wire transfer to
Buyer of cash in immediately available funds. If the Final Closing Net
Assets is greater than the Estimated Closing Date Net Assets (a "Final
Excess"), the Merger Consideration shall be increased by such
difference; provided, however, that such increase in Merger
Consideration in connection with such Final Excess shall be
accomplished by an increase of the principal amount of the Notes.
2.9 Deferred Merger Consideration.
2.9.1 L.L. Whiteside, Charles A. Harper, and Morris Horn (the
"Deferred Comp Shareholders") shall be entitled to additional
consideration (the "Deferred Merger Consideration") equal to $150,000,
payable in cash or a combination of cash and Buyer Common Shares, as
provided below, promptly upon determination thereof in accordance with
this Section 2.9, if the aggregate of the Net Revenues earned by the
Surviving Corporation in connection with the accounts listed on Exhibit
2.9 (collectively, the "Deferred Merger Consideration Accounts") for
the twelve (12) month period beginning October 1, 2004 and ending the
last day of September, 2005 (the "Earnout Net Revenues") is equal to or
greater than $5,600,000 as more fully described on Exhibit 2.9. In the
discretion of each of the Deferred Comp Shareholders, the Deferred
Merger Consideration, if earned, shall be paid in a combination of cash
and Buyer Common Shares (with the aggregate number of such Buyer Common
Shares being equal to (i) the dollar value of the portion of Deferred
Merger Consideration requested to be paid in Buyer Common Shares,
divided by the Deferred Merger Consideration Price), provided, however,
that notwithstanding anything to the contrary contained in this
Agreement, the aggregate number of Buyer Common Shares issued in
connection with the Deferred Merger Consideration shall not exceed a
number equal to (i) $200,000, divided by (ii) the Closing Shares Price.
If earned, the Deferred Merger Consideration will be paid 60.0% to L.L.
Whiteside, 27.5% to Charles A. Harper, and 10.5% to Morris Horn. Each
of the Shareholders represents and warrants to the Buyer that the
payment of Deferred Merger Consideration to only a portion of the
Shareholders contemplated by this Section does not violate any Law
prohibiting disparate treatment of holders of the same class of stock
in a merger transaction.
2.9.2 By October 25, 2005, Buyer shall (i) calculate the Earnout
Net Revenues and the amount of the Deferred Merger Consideration, if
any, and prepare detailed statements (the "Earnout Statements") of its
calculation of the Earnout Net Revenues and the Deferred Merger
Consideration and (ii) deliver the Earnout Statements to the Deferred
Comp Shareholders. The Deferred Comp Shareholders shall have a twenty
(20) day period to review the Earnout Statements and during such period
Buyer shall, if requested, share its relevant supporting documentation
with the Deferred Comp Shareholders or his professional adviser, which
shall be at Deferred Comp Shareholders' sole expense.
2.9.3 If the Deferred Comp Shareholders dispute either the Earnout
Net Revenues or the Deferred Merger Consideration stated in the Earnout
Statements, they shall deliver a notice to Buyer no later than twenty
(20) days after delivery of the Earnout Statements (the "Earnout
Dispute Notice"). The Deferred Comp Shareholders shall set forth in
detail in the Earnout Dispute Notice the basis for their disagreement
with the calculations of the Earnout Net Revenues or Earnout
Consideration specified in the Earnout Statements. If the Deferred
Comp Shareholders fail to deliver the Earnout Dispute Notice within the
allotted time period, they shall be deemed to have agreed to the
calculations of the Earnout Net Revenues and Earnout Consideration
specified in the Earnout Statements, which calculations shall be final,
conclusive and binding upon the parties, and the Deferred Merger
Consideration, if any, shall be paid within ten (10) days following
such calculation.
2.9.4 If the Deferred Comp Shareholders dispute the Earnout Net
Revenues or Deferred Merger Consideration as specified in the Earnout
Statements within the allotted time period, the parties in good faith
will attempt to jointly resolve any dispute during the thirty day
period following the delivery of the Earnout Dispute Notice. If Buyer
and the Deferred Comp Shareholders can resolve their dispute and agree
upon the Earnout Net Revenues and Deferred Merger Consideration, they
shall memorialize their agreement in writing and such mutually agreed
upon figure(s) shall be final, conclusive and binding upon all the
parties hereto.
2.9.5 If Buyer and the Deferred Comp Shareholders cannot resolve
the dispute to their mutual satisfaction, Buyer and the Deferred Comp
Shareholders shall engage the Independent Accountants to determine the
Earnout Net Revenues and Deferred Merger Consideration. The costs and
expenses of the Independent Accountants shall be borne fifty percent by
Buyer and fifty percent by the Deferred Comp Shareholders; provided,
however, that the Deferred Merger Consideration payable hereunder shall
be reduced by the Deferred Comp Shareholders' portion of such costs and
expenses; provided, further, that if the value of the Deferred Comp
Shareholders' portion of such costs and expenses is in excess of such
Deferred Merger Consideration payable hereunder, the aggregate
principal amount of their Notes shall be reduced by such excess. To
the extent that the Independent Accountants desire the parties to this
Agreement to meet in person, the parties shall choose a mutually
acceptable location for such meeting. Each of Buyer and the Deferred
Comp Shareholders shall provide or cause their accounting professional
advisers, as the case may be, to provide the Independent Accountants
such of their respective work papers or other relevant supporting
documentation as may be requested by the Independent Accountants. The
Independent Accountants shall be requested to complete their engagement
within forty five days of being retained by Buyer and the Deferred Comp
Shareholders. The determination of the Independent Accountants shall
be final, conclusive and binding upon the parties, and the Deferred
Merger Consideration, if any, shall be paid within ten (10) days
following such calculation.
2.9.6 Buyer and Merger Sub will use commercially reasonable efforts
to maximize the Earnout Net Revenues consistent with Buyer's past
practice.
2.10 Further Action. If, at any time after the Effective Time, any
further action is reasonably determined by Buyer to be necessary or
desirable to carry out the purposes of this Agreement or to vest the
Surviving Corporation with full right, title and possession of and to
all rights and property of Merger Sub and the Company, the officers and
directors of the Surviving Corporation and Buyer shall be fully
authorized (in the name of Merger Sub, in the name of the Company and
otherwise) to take such action.
Section 3: Representations of the Shareholders
Knowing that Buyer and Merger Sub are relying thereon, each of the
Shareholders, jointly and severally (but with respect to Dan Lane,
severally, but not jointly, and only to the extent of his actual
knowledge) represents and warrants to Buyer and Merger Sub, and
covenants with Buyer and Merger Sub, as follows:
3.1 Organization. The Company is a corporation, duly organized,
validly existing and in good standing under the laws of the State of
Texas. The Company possesses the necessary corporate power and
corporate authority to enter into and perform its obligations under
this Agreement. The Company possesses the full corporate power and
authority: (i) to own and use its Assets in the manner in which such
Assets are currently owned and used, and (ii) to conduct its business
as such business is currently being conducted. The Company is duly
qualified or registered to do business in each jurisdiction where such
qualification or registration is required by applicable Law, except
where the failure to be so qualified, registered or in good standing
would not reasonably be expected to have a Material Adverse Effect on
the Company.
3.1.1 Except as set forth on Schedule 3.1, the Company does not
have any subsidiaries and does not own any securities of any
corporation or any other interest in any Person. The Company has never
acquired or succeeded to all or substantially all of the Assets or
businesses of any other Person, and there is no other Person that may
be deemed to be a predecessor of the Company.
3.1.2 Schedule 3.1 sets forth for the Company: (i) its exact legal
name; (ii) its corporate business form and jurisdiction and date of
formation; (iii) its federal employer identification number; (iv) its
headquarters address; (v) its directors and officers, indicating all
current title(s) of each individual; (vi) its registered agent and/or
office in its jurisdiction of formation (if applicable); (vii) all
foreign jurisdictions in which it is qualified or registered to do
business, the date it so qualified or registered, and its registered
agent and/or office in each such jurisdiction (if applicable); (viii)
all fictitious, assumed or other names of any type that are registered
or used by it or under which it has done business at any time since its
date of incorporation; and (ix) any name changes, recapitalizations,
mergers, reorganizations or similar events since its date of formation.
3.1.3 Accurate and complete copies of the articles of incorporation
and bylaws, each as amended to date, and all Contracts related to the
acquisition or formation of the Company, have been delivered to Buyer.
3.2 Authority; Non-Contravention.
3.2.1 The Company has the absolute and unrestricted right, power
and authority to enter into and to perform its obligations under this
Agreement, and the execution, delivery and performance of this
Agreement and the consummation of the Transactions by the Company have
been duly authorized by all necessary corporate actions. Each of the
Shareholders has the full authority and capacity to enter into,
execute, deliver and perform all of his obligations under this
Agreement and under each other agreement, document or instrument
referred to in or contemplated by this Agreement to which such
Shareholder is or becomes a party. This Agreement constitutes the
legal, valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter
in effect affecting creditor's rights generally. This Agreement (i)
has been duly and validly executed by each Shareholder, and (ii)
constitutes a valid and binding obligation of each Shareholder,
enforceable against each Shareholder in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect affecting creditor's rights
generally.
3.2.2 Neither the execution, delivery and performance of this
Agreement nor the consummation or performance of the Transactions by
the Company and/or any of the Shareholders, will directly or indirectly
(with or without notice or lapse of time):
(a) result in a material breach or a violation of (i) any of the
provisions of the articles of incorporation or bylaws of the Company;
or (ii) any resolution adopted by the shareholders, board of directors
or any committee of the board of directors of the Company; or (iii)
result in a breach or violation of, or give any Governmental Body or
other Person the right to enjoin or invalidate any of the Transactions
or to exercise any remedy or obtain any relief under, any Law or any
Judgment to which the Company or any of the Shareholders, or any of the
Assets owned or used by the Company, is subject;
(b) result in a material breach or a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Permit that is held
by the Company or that otherwise relates to any of the businesses of
the Company or to any of the Assets owned or used by the Company;
(c) result in a material breach or a violation, or a default under,
any provision of, any Specified Contract (other than a customer
Contract) to which the Company is a party or by which it is bound or
Contract to which any Shareholder is a party or by which he is a party;
or
(d) result in the imposition or creation of any Encumbrance upon or
with respect to any Asset owned or used by the Company.
3.2.3 Except as set forth on Schedule 3.2, neither the Company nor
any of the Shareholders was, is or will be required to make any filing
with or give any notice to, or to obtain any Consent from, any Person
in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Transactions.
3.3 Capital Stock and Ownership.
3.3.1 Schedule 3.3 sets forth the authorized capital stock of the
Company, including the type of shares authorized, the par value per
share and the number of each type of shares that are issued and
outstanding. Schedule 3.3 contains an accurate and complete list of:
(i) the full legal names of all shareholders of the Company; (ii) the
addresses of such shareholders' respective current principal
residences; and (iii) the numbers of shares and type of shares owned of
record by such shareholders and the certificate numbers of the stock
certificates representing such shares. For each of the shareholders of
the Company, he is the sole record and beneficial owner of his shares
of capital stock of the Company as set forth on Schedule 3.3, and he
has good and marketable title to such shares, free and clear of any
Encumbrance. With respect to each such shareholder: (i) he is the
holder and beneficial owner of the shares of the capital stock of the
Company set forth on Schedule 3.3 next to such shareholder's name (the
"Shares") and has good and valid title to the Shares, free and clear of
any Encumbrances; (ii) the Shares are the only shares of the capital
stock of the Company held by such shareholder; (iii) such shareholder
has the ability to vote all of the Shares at any meeting of the
shareholders of the Company, or by written consent in lieu of any such
meeting; and (iv) other than in connection with the Transactions or as
set forth on Schedule 3.3, such shareholder has not appointed or
granted any proxy or entered into any agreement, contract, commitment
or understanding with respect to any of the Shares. Except as set
forth on Schedule 3.3, the Company has never authorized, offered, sold
or issued any securities other than shares of Company Common Stock.
Except for the Selling Shareholders, there are no other record or
beneficial owners of any shares of the capital stock of the Company or
any other securities of the Company. Except for the Shares listed on
Schedule 3.3, there currently are no other issued or outstanding shares
of capital stock of the Company. All outstanding shares of capital
stock of the Company have been duly authorized and validly issued, and
are fully paid and nonassessable. Except as set forth on Schedule 3.3,
there exists no right of first refusal or other preemptive right with
respect to the Company or the capital stock, business or Assets of the
Company.
3.3.2 All offerings, sales and issuances by the Company of any
shares of capital stock were conducted in compliance with all
applicable federal and state securities Laws and all other applicable
Laws.
3.3.3 Except as set forth on Schedule 3.3, there is no:
(a) outstanding subscription, option, call, warrant or right (whether
or not currently exercisable) to acquire any shares of the capital
stock or other securities of the Company;
(b) outstanding security, instrument or obligation that is or may
become convertible into or exchangeable for any shares of the capital
stock or other securities of the Company;
(c) Contract under which the Company is or may become obligated to
sell or otherwise issue any shares of its capital stock or any other
securities;
(d) pending or previously asserted or overtly threatened claim by any
Person to the effect that such Person is or was entitled to acquire or
receive any shares of capital stock or any other securities of the
Company; or
(e) condition or circumstance that, to the knowledge of the Company
and the Shareholders, may directly or indirectly be reasonably expected
to give rise to or provide a basis for the assertion of a claim by any
Person to the effect that such Person is or may be entitled to acquire
or receive any shares of capital stock or other securities of the
Company.
3.3.4 All securities repurchased, redeemed or otherwise reacquired
by the Company were reacquired in material compliance with the
applicable provisions of all applicable Contracts and all applicable
Laws.
3.3.5 As of Closing, each outstanding stock option, if any, issued
pursuant to any stock option plan or other agreements or arrangements
of the Company will be canceled and extinguished and the stock option
plans of the Company shall have been terminated. All options required
to be accelerated under any option plan of the Company shall have been
accelerated in accordance with the terms of the plan.
3.3.6 As of Closing, each warrant and every other call,
subscription or right to acquire Company Common Stock or other
securities of the Company shall have been cancelled and extinguished.
3.4 Financial and Corporate Records.
3.4.1 Except as set forth in Schedule 3.4, the Company's books and
records are and have been properly prepared and maintained in form and
substance adequate for preparing audited financial statements in
accordance with GAAP, and such books and records fairly and accurately
reflect in all material respects (i) all of the Company's Assets and
Obligations and (ii) all of the Contracts and other transactions to
which the Company is or was a party or by which the Company or the
business or Assets of the Company is or was affected.
3.4.2 Accurate and complete copies of the contents of the Company's
minute books and stock books have been delivered to Buyer. Such minute
books and stock books include (i) minutes of all meetings of the
shareholders of the Company, board of directors and any committees of
the board of directors of the Company at which any material action was
taken, which minutes accurately record all material actions taken at
such meetings, (ii) accurate and complete written statements of all
actions taken by the shareholders, board of directors and any
committees of the board of directors without a meeting, and (iii)
accurate and complete records of the subscription, issuance, transfer
and cancellation of all shares of capital stock and all other
securities since the date of incorporation. None of the shareholders,
board of directors or any committee of the board of directors has taken
any material action other than those actions reflected in the records
referenced in clauses (i) and (ii) of the preceding sentence.
3.4.3 Schedule 3.4 contains an accurate and complete list of all of
the Company's bank accounts, other accounts, certificates of deposit,
marketable securities, other investments, safe deposit boxes, lock
boxes and safes, and the names of all officers, employees or other
individuals who have access thereto or are authorized to make
withdrawals therefrom or dispositions thereof.
3.5 Compliance with Law; Permits.
3.5.1 Except as set forth on Schedule 3.5: (i) the Company is in
material compliance with each Judgment and with each Law that is
applicable to it or to the conduct of any of its businesses or the
ownership or use of any of its Assets; (ii) the Company has at all
times been in material compliance with each Judgment or Law that is or
was applicable to it or to the conduct of any of its businesses or the
ownership or use of any of its Assets; (iii) no event has occurred, and
no condition or circumstance exists, that, to the knowledge of the
Company and the Shareholders, might (with or without notice or lapse of
time) constitute or result in a material violation by the Company of,
or a material failure on the part of the Company to comply with, any
Judgment or Law; and (iv) the Company has not received, at any time,
any notice or other communication (in writing or otherwise) from any
Governmental Body or any other Person regarding (A) any actual,
alleged, possible or potential violation of, or failure to comply with,
any Judgment or Law, or (B) any actual, alleged, possible or potential
obligation on the part of the Company to undertake, or to bear all or
any portion of the cost of, any cleanup or any remedial, corrective or
response action of any nature.
3.5.2 Except as set forth on Schedule 3.5, the Company has obtained
and holds all Permits required for the lawful operation of its business
as and where such business is presently conducted. All Permits held by
the Company are listed on Schedule 3.5, and accurate and complete
copies of such Permits have been delivered to Buyer.
3.6 Financial Statements.
3.6.1 The Company's fiscal year end is December 31.
3.6.2 The Company has delivered to Buyer the following financial
statements and related notes (the "Financial Statements"): the audited
balance sheet (the "Latest Balance Sheet") of the Company as of
December 31, 2003 (the "Latest Balance Sheet Date"), and the audited
statements of income and cash flows of the Company for the twelve (12)
month period then ended.
3.6.3 The Financial Statements present fairly the financial
position of the Company as of the respective dates thereof and the
results of operations, changes in shareholders' equity and cash flows
of the Company in accordance with GAAP for the periods covered thereby.
Except as disclosed on Schedule 3.6, the Financial Statements have been
prepared in accordance with GAAP.
3.7 Assets.
3.7.1 Schedule 3.7 accurately identifies all Assets that are being
leased or licensed to the Company.
3.7.2 The Company owns and has good, valid and marketable title to,
all of its respective Assets that are purported to be owned by it and
has the right to transfer all rights, title and interest in such
Assets, free and clear of any Encumbrance other than liens in
connection with the amounts owed to Liberty Bank under the Company's
line of credit with such institution, which liens shall be terminated
as of Closing.
3.7.3 Except for the Assets reflected on the Latest Balance Sheet
and exclusive of the real property reflected in same, no other Assets
are necessary to operate, or have been material to the operation of,
the business of the Company.
3.8 Obligations.
3.8.1 The Company has no Obligations other than (i) Obligations
identified as such in the "liabilities" column on the Latest Balance
Sheet, (ii) Obligations set forth on Schedule 3.8, (iii) Obligations
under Contracts of the type listed on Schedule 3.14, provided that no
such Obligation consists of or has resulted from a default under or
violation of any such Contract, and (iv) Obligations that were incurred
in the ordinary course of business since the Latest Balance Sheet Date
and which were not incurred in breach of any of the representations and
warranties made in Section 3.9. Except as described on Schedule 3.8,
none of the Company's Obligations are guaranteed by any Person.
3.9 Operations Since the Latest Balance Sheet Date. Except as set
forth on Schedule 3.9, since the Latest Balance Sheet Date:
3.9.1 except in the ordinary course of its business consistent with
its past practices, the Company has not: (i) pledged or hypothecated
any of its Assets or otherwise permitted any of its Assets to become
subject to any Encumbrance; (ii) incurred any Obligation; (iii) made
any loan or advance to any Person; (iv) assumed, guaranteed or
otherwise become liable for any Obligation of any Person; (v) committed
for any capital expenditure; (vi) except as necessary to transfer the
Excluded Real Property and related debt from the Company, purchased,
leased, sold, abandoned or otherwise acquired or disposed of any
business or Assets; (vii) waived or released any right or canceled or
forgiven any debt or claim; (viii) discharged any Encumbrance or
discharged or paid any indebtedness or other Obligation; (ix) assumed
or entered into any Contract other than this Agreement; (x) amended or
terminated any Specified Contract; (xi) increased, or authorized an
increase in, the compensation or benefits paid or provided to any of
their directors, officers, employees, salesmen, agents or
representatives; (xii) established, adopted or amended (including any
amendment with a future effective date) any Employee Benefit Plan;
(xiii) except as necessary to transfer the Excluded Real Property and
related debt from the Company, declared, accrued, set aside, or paid
any dividend or made any other distribution in respect of any shares of
capital stock, other securities, Cash Assets or other Assets; (xiv)
repurchased, redeemed or otherwise reacquired any shares of capital
stock or other securities; (xv) sold or otherwise issued any shares of
capital stock or any other securities; (xvi) amended its articles or
certificate of incorporation, bylaws or other organizational documents;
(xvii) been a party to any merger, consolidation, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction; (xviii) accrued any deferred bonuses or compensation due
to any shareholder, employee or agent of the Company, or paid any such
deferred bonuses or compensation except to the extent such deferred
bonuses or compensation was accrued on the Latest Balance Sheet; (xix)
changed any of its methods of accounting or accounting practices in any
respect; or (xx) made any Tax Election;
3.9.2 even in the ordinary course of its businesses consistent with
its past practices, the Company has not incurred any Obligation, made
any loan to any Person, acquired or disposed of any business or Assets,
entered into any Contract (other than customer contracts) or other
transaction, or done any of the other things described in Section
3.9.1, involving an amount exceeding $20,000 in any single case or
$40,000 in the aggregate; and
3.9.3 there has been no material adverse change or material
casualty loss affecting the Company or the business, Assets or
financial condition of the Company; and there has been no adverse
change in the financial performance of the Company; and there has been
no loss, damage or destruction to, or any interruption in the use of,
any of the Software or other Assets (whether or not covered by
insurance) of the Company.
3.10 Accounts Receivable. All Accounts Receivable of the Company arose
in the ordinary course of business and are proper and valid Accounts
Receivable, and can be collected by the Company in full (without any
counterclaim or setoff) using commercially reasonable efforts to
collect said Accounts Receivable consistent with the Company's past
practice, net of any reserves. There are no refunds, discounts, rights
of setoff or assignments affecting any such Accounts Receivable.
Proper amounts of deferred revenues appear on the Company's books and
records, in accordance with GAAP, with respect to the Company's
(a) billed but unearned Accounts Receivable; (b) previously billed and
collected Accounts Receivable still unearned; and (c) unearned customer
deposits.
3.11 Tangible Property. The Company has good and marketable title to
all of its Tangible Property free and clear of any Encumbrances, except
as set forth on Schedule 3.11. Except as set forth on Schedule 3.11,
all of the Company's Tangible Property is located at the Company's
offices or facilities and the Company has the right to require the
immediate return of any of its Tangible Property which is not located
at its offices or facilities. All Tangible Property of the Company,
wherever located, (i) is in good condition, ordinary wear and tear
excepted, (ii) complies with, and is being operated and otherwise used
in material compliance with, all applicable Laws, and (iii) is
sufficient for the operations and Business of the Company as presently
conducted.
3.12 Real Property; Environmental Laws.
3.12.1 Except for the Excluded Real Property, the Company does not
own any Real Property. Schedule 3.12 contains an accurate and complete
list of all Real Property leased by the Company, showing location,
rental cost and landlord. All Real Property currently under lease to
or otherwise used by the Company is in good condition, ordinary wear
and tear excepted, and the Real Property that shall be used by the
Company on the Closing Date shall be sufficient for the current
Business operations of the Company and all currently owned Real
Property (including the Excluded Real Property) is, to the knowledge of
the Company and the Shareholders, in material compliance with
applicable Environmental Laws. To the knowledge of the Company and the
Shareholders, the Company's occupancy, maintenance or use of its leased
Real Property, is not in material violation of, or material breach or
default under, any Contract or Law, and no notice or, to the knowledge
of the Company and the Shareholders threat, from any lessor,
Governmental Body or other Person has been received by the Company
claiming any violation of, or breach, default or liability under, any
Contract or Law, or requiring the Company to perform any work, repairs,
construction, alteration, installations or environmental remediation.
To the Knowledge of the Company or the Shareholders, no Proceedings are
pending, or threatened, which would have a Material Adverse Effect on
the zoning or use of the Company's Real Property. All of the Company's
Real Property has direct access to, abuts, and is served by a public
road, which road does provide a means of ingress and egress thereto and
therefrom. All utilities, including water, gas, telephone,
electricity, sanitary and storm sewers, are currently available to all
of the Company's Real Property, and are adequate to serve the Company's
Real Property for the Company's current use thereof.
3.12.2 To the Knowledge of the Company or the Shareholders, the
Company is and has been in material compliance with all applicable
Environmental Laws, which compliance includes the possession by the
Company of all permits and other Governmental Authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof. Except as set forth on schedule 3.12, neither the
Company nor any of the Shareholders has placed or caused to be placed,
and neither the Company nor any of the Shareholders has any knowledge
that there were or are, any Hazardous Substances in, on, under or
migrating from any Real Property currently or formerly owned, currently
or formerly leased, or used by the Company (including the Excluded Real
Property).
3.12.3 The Excluded Real Property shall be transferred by the
Company pursuant to a "special warranty" deed in the form attached
hereto as Exhibit 3.12.3.
3.13 Software and Intangibles.
3.13.1 Set forth on Schedule 3.13 is an accurate and complete list
and description of all Company Intangibles (other than commercially
available, off the shelf, software programs). No other Software or
Intangible is used to operate the Business of the Company.
3.13.2 Except as set forth on Schedule 3.13, the Company has good
and marketable title to, and has the right to use, all of the Company
Intangibles owned by Company (the "Company Owned Intangibles"), free
and clear of any Encumbrance.
3.13.3 Except as set forth on Schedule 3.13, all of the Company
Owned Intangibles were created as a work for hire (as defined under
U.S. copyright law) by regular full time employees of the Company. To
the extent that any author or developer of any Company Owned Intangible
was not a regular full-time salaried employee of the Company at the
time such person contributed to such Company Owned Intangible, such
author or developer has irrevocably assigned to the Company in writing
all copyrights and other proprietary rights in such person's work with
respect to such Company Owned Intangibles.
3.13.4 None of the Company Intangibles, or their respective past or
current uses, including the preparation, distribution, marketing or
licensing thereof is violating or infringing upon, any Software,
technology, patent, copyright, trade secret or other Intangible of any
Person. None of the Company Intangibles is subject to any Judgment to
which the Company is a party. No Proceeding is pending or, to the
knowledge of the Company or the Shareholders, is threatened against the
Company, nor has any claim or demand been made against the Company,
which challenges the legality, validity, enforceability, use or
exclusive ownership by the Company of any of the Company Owned
Intangibles. To the knowledge of the Company and the Shareholders, no
Person is violating or infringing upon, or has violated or infringed
upon at any time, any of the Company Owned Intangibles.
3.13.5 The Company has used reasonable efforts to maintain the
confidentiality of all trade secrets with respect to the Company Owned
Intangibles.
3.13.6 Any license, sublicense or other Contract covering or
relating to any Company Intangible is legal, valid, binding,
enforceable and in full force and effect, and upon consummation of the
transactions contemplated hereby, will continue to be legal, valid,
binding, enforceable and in full force and effect on terms identical to
those in effect immediately prior to the consummation of the
transactions contemplated hereby. The Company is not in material
breach of or default under any license, sublicense or other Contract
covering or relating to any Company Intangible or has performed any act
or omitted to perform any act which, with notice or lapse of time or
both, will become or result in a material violation, breach or default
thereunder. No Proceeding is pending or is being or has been
threatened, nor, to the knowledge of the Company and the Shareholders,
has any claim or demand been made, which challenges the legality,
validity, enforceability or ownership of any license, sublicense or
other Contract covering or relating to any Company Intangible.
3.13.7 None of the Company Owned Intangibles is owned by or
registered in the name of any current or former owner, shareholder,
partner, director, executive, officer, employee, salesman, agent,
customer, representative or contractor or any of the Shareholders nor
does any such Person have any interest therein or right thereto,
including the right to royalty payments.
3.13.8 Except with respect to demonstration or trial copies, no
portion of any Company Intangible contains any "back door," "time
bomb," "Trojan horse," "worm," "drop dead device," "virus" or other
software routines or hardware components designed to permit
unauthorized access or to disable or erase software, hardware, or data
without the consent of the user.
3.13.9 Set forth in Schedule 3.13 are all Internet domain names
related to the Company's Business ("Domain Names"). The Company is the
registrant of all Domain Names and all the registrations of Domain
Names are currently in good standing. The Company has not received any
notice that any action has been taken or is pending to challenge rights
to, suspend, cancel or disable any Domain Name, registration therefor
or the right of the Company to use a Domain Name. The Company has all
right, title and interest in and to, and rights to use on the Internet
and common law rights as a trade-mark and trade name, the Domain Names.
3.13.10 There is no governmental prohibition or restriction on the
use of any of the Company Intangibles (i) in any jurisdiction in which
the Company currently does business or on the export or import of any
of the Company Intangibles from or to any such jurisdiction where the
Company currently does business, and (ii) to the knowledge of Company
and the Shareholders, in any other jurisdiction.
3.13.11 Except as disclosed in Schedule 3.13, the Company is the sole
owner of, and has good and marketable title to, and all right, title
and interest in and to all databases related to the Company's Business.
Except as specified in Schedule 3.13, no Person other than the Company
has any right or interest of any kind or nature in or to such
databases. To the knowledge of the Company and the Shareholders, no
person (i) is violating or infringing upon, or has violated or
infringed upon at any time, any right of the Company in or to such
databases; or (ii) is breaching or has breached at any time any duty or
obligation owed to the Company in respect of such databases. All
licenses referred to in Schedule 3.13 are in full force and effect and
neither the Company nor the other party thereto is in material default
of its obligations thereunder. To the knowledge of Company and the
Shareholders, neither the past nor current use of any such database or
the information contained therein in the Company's Business (i) has
violated or infringed upon, or is violating or infringing upon, the
rights of any Person; or (ii) breaches any duty or obligation owed to
any Person; or (iii) violates the privacy or any Law relating to the
privacy of any Person.
3.13.12 The Company has not experienced any Year 2000-related
problems with respect to such Software or received any notices from any
Person relating to any Year 2000-related problems.
3.14 Contracts.
3.14.1 Schedule 3.14 contains an accurate and complete list of all
of the following types of Contracts to which the Company is a party or
by which the Company is bound (collectively, the "Specified
Contracts"), grouped into the following categories and, where
applicable, subdivided by product line or division: (i) Software
license and Software maintenance Contracts under which the Company is
the licensor or provider of services, and other customer Contracts;
(ii) Contracts for the purchase, sale or lease of Real Property or
otherwise concerning Real Property (including service Contracts) owned
or used by the Company; (iii) loan agreements, mortgages, notes,
guarantees and other financing Contracts; (iv) Contracts for the
purchase, lease and/or maintenance of computer equipment, hardware, or
peripherals and other equipment; (v) Contracts for the purchase,
license, lease and/or maintenance of Software under which the Company
is the purchaser, licensee, lessee or user; and other supplier
Contracts; (vi) employment, consulting and sales representative
Contracts (excluding Contracts which constitute Employee Benefit Plans
listed on Schedule 3.16, and excluding oral Contracts with employees
for "at will" employment); (vii) Contracts under which any rights in
and/or ownership of any Software product, technology or other
Intangible of the Company, or any prior version thereof, or any part of
the customer base, business or Assets of the Company, or any shares or
other ownership interests in the Company (or any of its predecessors)
was acquired; (viii) Contracts containing clauses that prohibit or
restrict the Company from soliciting any employee or customer of any
other Person or otherwise prohibiting or restricting the Company from
engaging in any business and (ix) other Contracts material to the
Company's Business (excluding Contracts which constitute Insurance
Policies listed on Schedule 3.20). A description of each oral
Specified Contract is included on Schedule 3.14, and true and correct
copies of each written Specified Contract (including documentation
related to the transfer or sale by the Company of the Excluded Real
Property) have been delivered to Buyer.
3.14.2 Reserved.
3.14.3 Each Specified Contract is valid and in full force and
effect, and is enforceable by the Company in accordance with its terms
subject to bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect affecting creditor's rights
generally.
3.14.4 Except as set forth on Schedule 3.14: (i) the Company has not
and, to the knowledge of the Company and Shareholders, no other Person
has violated, breached, or declared or committed any default under, any
Specified Contract; (ii) to the knowledge of the Company and
Shareholders, no event has occurred, and, to the knowledge of the
Company and the Shareholders, no circumstance or condition exists, that
would reasonably be expected to (with or without notice or lapse of
time) (A) result in a violation or breach of any of the provisions of
any Specified Contract, (B) give any Person the right to declare a
default or exercise any remedy under any Specified Contract, (C) give
any Person the right to accelerate the maturity or performance of any
Specified Contract, or (D) give the Company or, to the best of the
Company's and the Shareholders' knowledge, any other Person, the right
to cancel, terminate or modify any Specified Contract; (iii) the
Company has not received any notice or other communication (in writing
or otherwise) regarding any actual, alleged, possible or potential
violation or breach of, or default under, any Specified Contract; and
(iv) the Company has not waived any of its rights under any Specified
Contract.
3.14.5 The performance of the Specified Contracts in accordance with
their respective terms will not result in any violation of or failure
to comply with any Judgment or Law applicable to the Company on or
prior to the Closing Date.
3.14.6 Except as set forth on Schedule 3.14, no Person is
renegotiating, or, to the knowledge of the Company and the
Shareholders, has the right to renegotiate, any amount paid or payable
to the Company under any Specified Contract or any other term or
provision of any Specified Contract.
3.14.7 The Specified Contracts are all the Contracts necessary and
sufficient to operate the Company's Business. Except as set forth on
Schedule 3.14, there are no currently outstanding proposals or offers
submitted by the Company to any customer, prospect, supplier or other
Person which, if accepted, would result in a legally binding Contract
of the Company involving an amount or commitment exceeding $10,000 in
any single case or an aggregate amount or commitment exceeding $20,000
in the aggregate.
3.15 Employees and Independent Contractors.
3.15.1 Schedule 3.15 contains an accurate and complete list of all
of the employees of the Company (including any employee of the Company
who is on a leave of absence or on layoff status) and (i) their titles
or responsibilities; (ii) their dates of hire; (iii) their current
salaries or wages (including bonuses); (iv) any Permit that is held by
them and that relates to or is useful in connection with the Business
of the Company; and (v) any outstanding loans or advances made to them
by the Company.
3.15.2 Schedule 3.15 also contains an accurate and complete list of
(i) all sales representatives and independent contractors engaged by
the Company and (ii) their payment arrangements (if not set forth in a
Specified Contract listed or described on Schedule 3.14 and previously
delivered to Buyer).
3.15.3 Except as limited by the specific and express terms of any
employment Contracts listed on Schedule 3.14, the Company has the right
to terminate the employment of each of its employees at will and to
terminate the engagement of any of its independent contractors without
payment to such employee or independent contractor other than for
services rendered through termination and without incurring any penalty
or liability.
3.15.4 The Company is in material compliance with all Laws
relating to employment practices. The Company has delivered to Buyer
accurate and complete copies of all employee manuals and handbooks,
disclosure materials, policy statements and other materials relating to
the employment of the current and former employees of the Company.
3.15.5 The Company has never been a party to or bound by any union
or collective bargaining Contract, nor is any such Contract currently
in effect or being negotiated by or on behalf of the Company.
3.15.6 Since January 1, 2001, the Company has not experienced any
labor problem that was or is material to it. To the knowledge of the
Company and the Shareholders, the Company's relations with its
employees are currently on a good and normal basis.
3.15.7 To the best of the Company's and the Shareholders' knowledge:
(i) no employee of the Company has received an offer to join a business
that may be competitive with the Company's Business; and (ii) no
employee of the Company is a party to or is bound by any
confidentiality agreement, noncompetition agreement or other Contract
(with any Person) that may have an adverse effect on (A) the
performance by such employee of any of his duties or responsibilities
as an employee of the Company, or (B) any of the businesses or
operations of the Company.
3.15.8 Except as set forth on Schedule 3.15 or to the extent that
the absence of such agreement would not have a Material Adverse Effect
on the Company's business, the Company's current and past employees,
consultants and contractors have signed agreements with the Company
containing restrictions that adequately protect the proprietary and
confidential information of the Company and vest in the Company the
full ownership of items developed by such Person.
3.15.9 Except as set forth on Schedule 3.15, since June 30, 2003, no
employee of the Company having an annual salary of $50,000 or more has
indicated an intention to terminate or has terminated his or her
employment with the Company. To the best of the Company's and the
Shareholders' knowledge, the transactions contemplated by this
Agreement will not adversely affect relations with any employees of the
Company.
3.16 Employee Benefit Plans.
3.16.1 Schedule 3.16 contains an accurate and complete list and
description of all of the (i) Employee Benefit Plans of the Company,
including those to which the Company, or any ERISA Affiliate, sponsors,
maintains or contributes to, is required to contribute to, or has or
could reasonably be expected to have any liability of any nature with
respect to, whether known or unknown, direct or indirect, fixed or
contingent, for the benefit of present or former employees of the
Company and/or its ERISA Affiliates (referred to collectively as the
"Company's Employee Benefit Plans" and individually as the "Company's
Employee Benefit Plan"), (ii) all employees employed by the Company
affected or covered by an Employee Benefit Plan, (iii) all Obligations
thereunder as of the Closing Date, and (iv) all ERISA Affiliates.
Accurate and complete copies of all of the Company's Employee Benefit
Plans have been provided to Buyer as well as the most recent
determination letter issued, if any, or if none, Internal Revenue
Service ("IRS") opinion or advisory letter issued with respect to the
Company's Employee Benefit Plan that is intended to be a qualified plan
within the meaning of Section 401(a) of the Code, all pending
applications for rulings, determination letters, opinions, no action
letters and similar documents filed with any governmental agency
(including the Department of Labor and the IRS), summary plan
descriptions, service agreements, stop loss insurance policies, and all
related contracts and documents (including, but not limited to,
employee summaries and material employee communications), all closing
letters, audit finding letters, revenue agent findings and similar
documents. No Company Employee Benefit Plan is subject to Title IV of
ERISA or Code Section 412. No Company Employee Benefit Plan is a
Multiple Employer Plan or Multiemployer Plan under Code Section 413(c)
or 414(f). No employer, other than the Company or an ERISA Affiliate,
is permitted to participate or participates in the Company's Employee
Benefit Plans and no leased employees (as defined in Section 414(n) of
the Code) or independent contractors are eligible for, or participate
in, the Company's Employee Benefit Plans. No Company Employee Benefit
Plan promises or provides health, life or other welfare benefits to
retirees or former employees, or severance benefits, except as required
by Code Section 4980B, Sections 601 through 609 of ERISA, or comparable
state statutes which provide for continuing health care coverage.
3.16.2 Except as set forth on Schedule 3.16, neither the Company nor
any ERISA Affiliate has (i) established, sponsored, maintained or
contributed to (or has or had the obligation to contribute to) any
Employee Benefit Plan, (ii) proposed any Employee Benefit Plan which it
plans to establish, sponsor, maintain or to which it will be required
to contribute, or (iii) proposed any changes to any of the Company's
Employee Benefit Plans now in effect. Except as set forth on Schedule
3.16, each of the Company's Employee Benefit Plans that provides a self-
insured health benefit is subject to a stop-loss insurance policy in
which the Company is an insured party and no facts to the knowledge of
the Company and the Shareholders exist which could form the basis for
any denial of coverage under such policy.
3.16.3 With respect to the Company's Employee Benefit Plans, the
Company and each ERISA Affiliate will have made, on or before the
Closing Date, all payments required to be made by them on or before the
Closing Date and will have accrued (in accordance with GAAP) as of the
Closing Date all payments due but not yet payable as of the Closing
Date. There has not been, nor will there be, any Accumulated Funding
Deficiencies (as defined in ERISA or the Code) or waivers of such
deficiencies.
3.16.4 The Company has delivered to Buyer an accurate and complete
copy of the most current Form 5500 and any other form or filing
required to be submitted to any governmental agency with regard to each
of the Company's Employee Benefit Plans and the most current actuarial
report, if any, with regard to each of the Company's Employee Benefit
Plans and such forms are attached as Schedule 3.16.
3.16.5 All of the Company's Employee Benefit Plans are, and have
been, operated in full compliance with their provisions and with all
applicable Laws including ERISA and the Code and the regulations and
rulings thereunder. With respect to each of the Company's Employee
Benefit Plans that is intended to be qualified under Section 401(a),
each such plan has been determined by the IRS to be so qualified as to
form, and each trust forming a part thereof has been determined by the
IRS to be exempt from tax pursuant to Section 501(a) of the Code, and
with respect to each of the Company's Employee Benefit Plans that is
intended to be a "voluntary employees' beneficiary association" within
the meaning of Section 501(c)(9) of the Code, each such association has
been determined by the IRS to have such status. No reason exists that
would cause such qualified or Section 501(c)(9) status to be revoked
for any period. The Company, its ERISA Affiliates, and all fiduciaries
of the Company's Employee Benefit Plans have complied with the
provisions of the Company's Employee Benefit Plans and with all
applicable Laws including ERISA and the Code and the regulations and
rulings thereunder. There have been no Reportable Events (as defined
in ERISA), no events described in Sections 4062, 4063 or 4064 of ERISA,
and no termination or partial termination (including any termination or
partial termination attributable to the Transactions) of any of the
Company's Employee Benefit Plans. There would be no Obligation of the
Company or any ERISA Affiliate under Title IV of ERISA if any of the
Company's Employee Benefit Plans were terminated as of the Closing
Date. Neither the Company nor any ERISA Affiliate has incurred, nor
will incur, any withdrawal liability, nor does the Company nor any
ERISA Affiliate have any contingent withdrawal liability, under ERISA,
to any Multiemployer Plan (as defined in ERISA). Neither the Company
nor any ERISA Affiliate has incurred, or will incur, any Obligation to
the Pension Benefit Guaranty Corporation (or any successor thereto).
None of the Company's Employee Benefit Plans is a "MEWA" as defined in
Section 3(40)(A) of ERISA. No non-exempt prohibited transaction under
Section 406 or 407 of ERISA or Section 4975 of the Code has occurred
with respect to any of the Company's Employee Benefit Plans. Neither
the Company nor any ERISA Affiliate has incurred, nor will incur, any
tax liability or civil penalty, damages, or other liabilities arising
under Section 502 of ERISA, resulting from any of the Company's
Employee Benefit Plans, with respect to any matter arising on or before
the Closing Date.
3.16.6 Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in
any payment (including any severance, unemployment compensation or
golden parachute payment) becoming due from the Company or any ERISA
Affiliate under any of the Company's Employee Benefit Plans, (ii)
increase any benefits otherwise payable under any of the Company's
Employee Benefit Plans, or (iii) result in the acceleration of the time
of payment or vesting of any such benefits to any extent.
3.16.7 There are no pending actions, claims or lawsuits that have
been asserted or instituted against any of the Company's Employee
Benefit Plans, the assets of any of the trusts under such plans, the
plan sponsor, the plan administrator or any fiduciary of any such plan
(other than routine benefit claims), and, to the knowledge of the
Company, there are no facts which could form the basis for any such
action, claim or lawsuit. There are no investigations or audits by any
government agency of any of the Company's Employee Benefit Plans, any
trusts under such plans, the plan sponsor, the plan administrator or
any fiduciary of any such plan that have been instituted or threatened
and, to the knowledge of the Company and the Shareholders, there are no
facts which could form the basis for any such investigation or audit.
3.16.8 The Company and/or its ERISA Affiliates can terminate each of
the Company's Employee Benefit Plans without further liability to the
Company and/or its ERISA Affiliates. No action or omission of the
Company, or any ERISA Affiliate, or any director, officer, or agent
thereof in any way restricts, impairs or prohibits the Company or any
ERISA Affiliate, or any successor, from amending, merging, or
terminating any of the Company's Employee Benefit Plans in accordance
with the express terms of any such plan and applicable law.
3.17 Customers and Suppliers. Schedule 3.17 contains an accurate and
complete list of (a) all customers generating greater than 5% of the
Company's revenues for the 18 month period ending on the date hereof
and (b) all current prospects and suppliers of the Company. Except as
set forth on Schedule 3.17, since January 1, 2004, none of the
customers or suppliers of the Company has given notice or otherwise
indicated to the Company that (i) it will or intends to terminate or
not renew its Contract with the Company before the scheduled expiration
date, (ii) it will otherwise terminate its relationship with the
Company, or (iii) it may otherwise reduce the volume of business
transacted with the Company below historical levels. The relationship
of the Company with its customers is currently on a good and normal
basis, and the Company has not experienced any problems with customers
or suppliers since January 1, 2004. To the best of the Company's and
the Shareholders' knowledge, the Transactions will not adversely affect
the Company's relations with any of the customers or suppliers of the
Company.
3.18 Taxes.
3.18.1 Schedule 3.18 contains an accurate and complete list of all
Tax Returns with respect to the Company's last five fiscal years. "Tax
Returns" means all federal, state, local, foreign and other Tax returns
and reports, information returns, statements, declarations, estimates,
schedules, notices, notifications, forms, elections, certificates or
other documents the Company is required to file or submit (including
any amended Tax Returns) to any Governmental Body with respect to the
determination, assessment, collection or payment of any Tax or in
connection with the administration, implementation or enforcement of or
compliance with any Law relating to any Tax. Accurate and complete
copies of all federal, state, local and foreign income, sales and use
Tax Returns filed by the Company with respect to its last five fiscal
years are attached to Schedule 3.18, and accurate and complete copies
of all other Tax Returns listed thereon have been delivered to Buyer.
3.18.2 Except as set forth on Schedule 3.18: (i) the Company has
properly and timely filed all Tax Returns required to be filed by it,
all of which were accurately prepared and completed in full compliance
with all Laws; (ii) the Company has paid all Taxes required to be paid
by it (whether or not such Taxes were shown as due on a Tax Return);
(iii) no audit of the Company by any governmental taxing authority has
ever been conducted, is currently pending or, to the best of the
Company's and Shareholders' knowledge, is threatened; (iv) no notice of
any proposed Tax audit, or of any Tax deficiency or adjustment, has
been received by the Company, and there is no reasonable basis for any
Tax deficiency or adjustment to be assessed against the Company;
(v) there are no agreements or waivers currently in effect that provide
for an extension of time for the assessment of any Tax against the
Company; (vi) the Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through
the dates thereof in accordance with GAAP; (vii) since the Latest
Balance Sheet Date, the Company has not incurred any liabilities for
Taxes except in the ordinary course of business consistent with past
practices and except in connection with a sale of real property closed
by the Company in September 2004; and (ix) no Proceeding is pending or
has been threatened, and no claim has been or is likely to be asserted,
against or with respect to the Company in respect of any Tax.
3.18.3 There are no Encumbrances on any of the Assets of the Company
that arose in connection with any failure (or alleged failure) to pay
any Tax.
3.18.4 The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder, or other third
party and all IRS Forms W-2 and 1099 required with respect thereto have
been properly completed and timely filed.
3.18.5 The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or could result, separately or in
the aggregate, in the payment of (i) any "excess parachute payment"
within the meaning of Section 280G of the Code (or any corresponding
provision of state, local or foreign tax law) and (ii) any amount that
would not be fully deductible as a result of Section 162(m) of the Code
(or any corresponding provision of state, local or foreign tax law).
3.18.6 The Company (a) has not been a member of an affiliated group
filing a consolidated federal income tax return and (b) does not have
any liability for the Taxes of any Person (other than the Company under
Reg. 1.1502-6 (or any similar provision of state, local, or foreign
law)), as a transferee or successor, by contract, or otherwise.
3.18.7 The unpaid Taxes of the Company (i) did not, as of the date
of the Latest Balance Sheet, exceed the reserve for Tax liability
(rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face
of the Latest Balance Sheet of the Company included in the Financial
Statements and (ii) do not and will not exceed the reserve as adjusted
for the passage of time through the Closing Date in accordance with the
past customs and practice of the Company in filing its Tax Returns.
Since the date of the Latest Balance Sheet and exclusive of gain on the
sale of Excluded Real Property, closed prior to September 30, 2004, the
Company has not incurred any liability for Taxes arising from
extraordinary gains or losses, as the term is used in GAAP, outside the
Ordinary Course of Business consistent with past custom and practice.
3.18.8 The Company has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662
of the Code.
3.18.9 None of the Shareholders are foreign persons within the
meaning of Section 1445 of the Code.
3.18.10 The Company has not been the "distributing corporation"
(within the meaning of Section 355(a)(1) of the Code) nor the
"controlled corporation" (within the meaning of Section 355(a)(1) of
the Code) within the two-year period ending as of the date of this
Agreement.
3.18.11 The Company will not be required to include any item of
income in, or exclude any item of deduction from, taxable income for
any taxable period (or portion thereof) ending after the Closing Date
as a result of any: [i] change in method of accounting for a taxable
period ending prior to the Closing Date; [ii] "closing agreement" as
defined in Section 7121 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax law) executed on or
prior to the Closing Date; [iii] intercompany transactions or excess
loss account described in Treasury Regulations under Section 1502 of
the Code (or any corresponding or similar provision of state, local or
foreign income Tax law); [iv] installment sale or open transaction
disposition made on or prior to the Closing Date; or [v] prepaid amount
received after the Closing Date.
3.18.12 The Company has disclosed to the Internal Revenue Service on
the appropriate Tax Returns any Reportable Transaction in which the
Company has participated. The Company has retained all documents and
other records pertaining to any Reportable Transaction in which the
Company has participated, including documents and other records listed
in Treasury Regulation Section 1.6011-4(g) and any other documents or
other records which are related to any Reportable Transaction in which
the Company has participated but not listed in Treasury Regulation
Section 1.6011-4(g).
3.19 Proceedings and Judgments.
3.19.1 Except as set forth on Schedule 3.19: (i) no Proceeding is
currently pending or, to the knowledge of the Company and the
Shareholders, threatened, nor has any Proceeding occurred at any time
since January 1, 2002, to which the Company is or was a party, or by
which the Company or any Assets or business of the Company is or was
affected; (ii) no Judgment is currently outstanding, nor has any
Judgment been outstanding at any time since January 1, 2002, against
the Company, or by which the Company or any Assets or Business of the
Company is or was affected; and (iii) no breach of contract, breach of
warranty, tort, negligence, infringement, product liability,
discrimination, wrongful discharge or other claim of any nature has
been asserted or, to the knowledge of the Company and the Shareholders,
threatened by or against the Company at any time since January 1, 2002,
and, to the knowledge of the Company and the Shareholders, there is no
basis for any such claim. Except as set forth on Schedule 3.19, no
event has occurred, and no claim, dispute or, to the knowledge of the
Company and the Shareholders, other condition or circumstance exists,
that would reasonably be expected to, directly or indirectly, give rise
to or serve as a basis for the commencement of any Proceeding described
in this Section 3.19.1.
3.19.2 As to each matter described on Schedule 3.19, accurate and
complete copies of all pertinent pleadings, judgments, orders,
correspondence and other legal documents have been delivered to Buyer.
3.19.3 To the best of the Company's and the Shareholders' knowledge,
no officer or employee of the Company is subject to any Judgment that
prohibits such officer or employee from engaging in or continuing any
conduct, activity or practice relating to the Business of the Company.
3.19.4 There is no proposed Judgment that, if issued or otherwise
put into effect, (i) would reasonably be expected to have an adverse
effect on the Business, condition, Assets, technology, liabilities,
operations, employees, financial performance, revenues, net income,
political environment, economic environment or prospects of or with
respect to the Company (or on any aspect or portion thereof) or on the
ability of the Company or the Shareholders to comply with or perform
any covenant or obligation under this Agreement, or (ii) would
reasonably be expected to have the effect of preventing, delaying,
making illegal or otherwise interfering with any of the transactions
contemplated by this Agreement or making it more difficult for Buyer to
realize any anticipated benefit of any of the transactions contemplated
by this Agreement.
3.20 Insurance. Schedule 3.20 contains an accurate and complete list
and description of all Insurance Policies (excluding Insurance Policies
that constitute the Employee Benefit Plans described on Schedule 3.16)
currently owned or maintained by the Company. Except as set forth on
Schedule 3.20, accurate and complete copies of all Insurance Policies
described or required to be described on Schedule 3.20 have been
delivered to Buyer. Each such Insurance Policy is in full force and
effect; the Company has not received notice of cancellation with
respect to any such Insurance Policy; and the Company has no knowledge
of any basis for the insurer thereunder to terminate any such Insurance
Policy. Except as set forth on Schedule 3.20, there are no claims that
are pending under any of the Insurance Policies described on Schedule
3.20.
3.21 Questionable Payments. Neither the Company, the Shareholders, nor
any of the current or former shareholders, directors, executives,
officers, representatives, agents or employees of the Company (when
acting in such capacity or otherwise on behalf of the Company or any of
its predecessors): (a) has used or is using any corporate funds for
any illegal contributions, gifts, entertainment or other unlawful
expenses relating to political activity; (b) has used or is using any
corporate funds for any direct or indirect unlawful payments to any
foreign or domestic government officials or employees; (c) has violated
or is violating any provision of the Foreign Corrupt Practices Act of
1977; (d) has established or maintained, or is maintaining, any
unlawful or unrecorded fund of corporate monies or other properties;
(e) has made at any time since January 1, 2002, any false or fictitious
entries on the books and records of the Company; (f) has made any
bribe, rebate, payoff, influence payment, kickback or other unlawful
payment of any nature using corporate funds or otherwise on behalf of
the Company; or (g) has made any material favor or gift that is not
deductible for federal income tax purposes using corporate funds or
otherwise on behalf of the Company.
3.22 Related Party Transactions. Except as described on Schedule 3.22
and except for any employment Contracts listed on Schedule 3.14, there
are no real estate leases, personal property leases, loans, guarantees,
Contracts, transactions, understandings or other arrangements of any
nature between or among the Company and any current or former
shareholder, director, employee, officer or controlling Person of the
Company (or any of its respective predecessors) or any other Person
affiliated with the Company (or any of its respective predecessors).
3.23 Brokerage Fees. Except as set forth on Schedule 3.23, no Person
acting on behalf of the Company or any of the Shareholders is or shall
be entitled to any brokerage or finder's fee in connection with the
Transactions.
3.24 Investment Matters.
3.24.1 Each of the Shareholders (i) has carefully read and
understands (a) the Buyer SEC Documents and (b) the risk factors
related to Buyer as set forth on Exhibit 3.24.1 attached hereto, and
(ii) is acquiring the Buyer Common Shares and the Notes (collectively,
the "Halifax Securities") for his own account as principal for
investment and not with a view toward resale or distribution thereof in
violation of the securities laws.
3.24.2 Each of the Shareholders represents and warrants that he has
knowledge and experience in financial and business matters and that he
is capable of evaluating the merits and risks of the investment in the
Halifax Securities to reach an informed and knowledgeable decision to
acquire the Halifax Securities or that he has relied on advisers with
such knowledge and experience.
3.24.3 Each of the Shareholders or his advisor has had an
opportunity to ask questions and receive answers from Buyer concerning
Buyer, and has been furnished with all information about Buyer that he
has requested. Each Shareholder is an "accredited investor" as defined
in Rule 501(a) of the Securities Act of 1933, as amended, and such
shareholder alone has such knowledge and experience in financial and
business matters and is capable of evaluating the merits and risks of
the investment in the Halifax Securities being issued hereunder.
3.24.4 Reserved.
3.24.5 Each of the Shareholders represents and warrants that (i) he
maintains his domicile at the address shown in Section 13.3 hereof,
(ii) he has no need for liquidity in the investment in the Halifax
Securities, (iii) all of his investments in and commitments to non-
liquid investments are, and after a purchase of the Halifax Securities
will be, reasonable in relation to his net worth and current needs,
(iv) he is able to bear the economic risk of losing the entire
investment in the Halifax Securities, and (v) the financial information
provided by him accurately reflects his financial condition, with
respect to which he does not anticipate any material adverse changes.
3.24.6 Each of the Shareholders understands that the Halifax
Securities to be issued hereunder have not been registered under either
the Securities Act of 1933 or the securities laws of any state and, as
a result thereof, are subject to substantial restrictions on transfer
and shall bear a legend restricting the transfer of such securities.
3.24.7 Each of the Shareholders understands that (i) except as may
be provided in the Registration Rights Agreement, Buyer has no
obligation or intention to register the Halifax Securities issued
hereunder under any federal or state securities laws, or to take any
action which would make available any exemption from the registration
requirements of such laws, and (ii) therefore, each Shareholder may be
precluded from selling or otherwise transferring or disposing of any of
such Halifax Securities or any portion thereof and may have to bear the
economic risk of its investment therein for an indefinite period of
time.
3.24.8 Each of the Shareholders or his advisor, if any, understands
that an investment in the Halifax Securities issued hereunder involves
certain risks and has taken full cognizance of and understands all of
the risk factors relating to the purchase of such Halifax Securities,
including those set forth under the caption "Risk Factors" in any Form
10-K included as part of the Buyer SEC Documents and such risk factors
set forth on Exhibit 3.24.1 attached hereto.
3.24.9 Intentionally Omitted.
3.24.10 Each of the Shareholders understands that any information
furnished by Buyer to the Shareholders or the Company does not
constitute investment, accounting, legal or tax advice. Each
Shareholder, in making the investment in the Halifax Securities
contemplated hereunder, is relying, if at all, solely upon the advice
of such Shareholder's tax advisers with respect to the federal and/or
state tax aspects of an investment in the Halifax Securities and,
except as expressly provided otherwise in this Agreement, Buyer has not
made any representation regarding the tax consequences of such
investment in the Halifax Securities.
3.24.11 Each of the Shareholders or his advisor, if any, understands
that the Halifax Securities are being offered and sold in reliance on
specific exemptions from the registration requirements of federal and
state securities laws and that Buyer and controlling persons thereof
are relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings related to
the Shareholders set forth herein and in the Questionnaires, attached
hereto as Exhibit 3.24.11, in order to determine the applicability of
such exemptions and the suitability of him to acquire the Halifax
Securities being issued hereunder.
3.24.12 Each of the Shareholders represents and warrants that he is
unaware of, is in no way relying on, and did not become aware of the
offering of the Halifax Securities through or as a result of, any form
of general solicitation or general advertising including, without
limitation, any article, notice, advertisement or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, in connection with the offering and sale of the
Halifax Securities and is not subscribing for such Halifax Securities
and did not become aware of the offering of the Halifax Securities
through or as a result of any seminar or meeting to which such
Shareholder was invited by, or any solicitation of a subscription by, a
person not previously known to such Shareholder in connection with
investments in securities generally.
3.24.13 Each of the Shareholders acknowledges that he has been
provided confidential information regarding Buyer and agrees not to
(and agrees to cause his consultants and representatives not to)
distribute or disclose such information to any other party without the
prior written consent of Buyer. Each of the Shareholders agrees not to
(and agrees to cause his consultants and representatives not to) engage
in any purchase or sale transaction in Buyer's securities following
receipt of this non-public information until such time as this non-
public information is disclosed to the public generally or such
Shareholder is advised by Buyer that it is acceptable to do so.
3.25 Full Disclosure. No representation or warranty made by the
Company or the Shareholders in this Agreement or pursuant hereto (a)
contains any untrue statement of any fact; or (b) omits to state any
fact that is necessary to make the statements made, in the context in
which made, not false or misleading in any respect. The copies of
documents attached as Schedules to this Agreement or otherwise
delivered to Buyer in connection with the transactions contemplated
hereby, are accurate and complete, and are not missing any amendments,
modifications, correspondence or other related papers which would be
pertinent to Buyer's understanding thereof in any respect. To the best
of the Company's and the Shareholders' knowledge (except that Dan
Lane's knowledge shall be limited to his actual knowledge thereof),
there is no fact that has not been disclosed to Buyer in the Schedules
to this Agreement or otherwise in writing, that was or is or, so far as
either the Company or the Shareholders can reasonably foresee, will
have a Material Adverse Effect.
Section 4: Representations of Buyer and Merger Sub
Knowing that the Shareholders are relying thereon, Buyer and
Merger Sub, jointly and severally, represent and warrant to the
Shareholders as of the date of this Agreement, and covenant with the
Shareholders, as follows:
4.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Virginia.
Merger Sub is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Delaware. Each of Buyer
and Merger Sub possesses the full power and authority to own its
Assets, conduct its business as and where such business is presently
conducted, and enter into, deliver and perform this Agreement and to
consummate the Transactions, except where the failure to be so
qualified, registered or in good standing would not reasonably be
expected to have a material adverse effect on the Buyer. All of the
issued and outstanding shares of capital stock of Merger Sub are owned,
beneficially and of record, by Buyer.
4.2 Authority; Non-Contravention. Each of Buyer's and Merger Sub's
execution, delivery and performance of this Agreement, the Notes, and
each other agreement to which Buyer or Merger Sub is or becomes a party
pursuant to this Agreement, and its consummation of the Transactions
(a) have been duly authorized by all necessary actions by their
respective boards of directors and; (b) do not require any approval or
actions by the stockholders of Buyer; (c) do not constitute a violation
of or default under their respective charters or bylaws; (d) do not
constitute a default or breach (immediately or after the giving of
notice, passage of time or both) under any Contract to which Buyer or
Merger Sub is a party or by which they are bound; (e) do not constitute
a violation of any Law or Judgment that is applicable to them or to
their respective businesses or Assets, or to the Transactions; and
(f) except as stated on Schedule 4.2, do not require the Consent of any
Person. This Agreement, the Notes, and each other agreement to which
Buyer or Merger Sub is or becomes a party pursuant to this Agreement
constitutes the valid and legally binding agreement of each of Buyer
and Merger Sub, enforceable against each of them in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect affecting creditor's rights
generally.
4.3 Buyer's Stock. The total authorized shares of capital stock of
Buyer is 7,500,000, consisting of 6,000,000 Buyer Common Shares, of
which 2,920,412 shares are issued and outstanding as of the date
hereof, and 1,500,000 shares of preferred stock, $0.24 par value per
share, none of which are issued or outstanding. Buyer has issued (i)
warrants granting the holders thereof the right to purchase, on or
before July 22, 2008, an aggregate of 58,393 Buyer Common Shares at an
exercise price per share of $4.93 and (ii) warrants to one or more of
its investment advisors granting the holders thereof the right to
purchase, on or before March 4, 2008, an aggregate of 50,000 Buyer
Common Shares at an exercise price per share of $3.19. Buyer has (i)
500,000 shares of Common Stock authorized for issuance under its stock
incentive plans (with (a) 400,000 authorized under Buyer's incentive
plan for employees and (b) 100,000 authorized under Buyer's plan for
directors), and (ii) outstanding under such plans options to purchase
472,450 shares as of the date hereof (with (a) 372,450 outstanding
under Buyer's plan for employees and (b) 100,000 outstanding under
Buyer's plan for directors). Except for the Deferred Merger
Consideration under this Agreement and under that certain Agreement and
Plan of Merger dated August 29, 2003 related to Buyer's acquisition of
Microserv, Inc. (the "Microserv Merger Agreement") and except as
described above or on Schedule 4.3, Buyer has not issued any securities
exercisable to purchase or convertible into capital stock of Buyer or
any subsidiary of Buyer nor is Buyer or any subsidiary otherwise bound
by any agreement, whether absolute or contingent, to issue any such
securities. Each issued and outstanding share of capital stock of
Buyer has been duly authorized and is validly issued and outstanding
and their issuance and sale have not violated any preemptive rights.
The Buyer Common Shares to be issued hereunder, when so issued, shall
be duly authorized and validly issued, fully paid and nonassessable and
shall not have been issued in violation of any preemptive right.
4.4 Indebtedness. Buyer does not have any secured debt, except as set
forth on Schedule 4.4, which describes the name of any lender, the
maximum amount Buyer can borrow under the loan facility, and the amount
actually borrowed as of a recent date. Buyer has outstanding
subordinated promissory notes to Research Industries Incorporated
("RII") in the aggregate principal amount of $2,000,000, and a
convertible subordinated debenture to RII with a balance at Closing of
$400,000. Except for the foregoing and except for the notes issued to
the former shareholders of Microserv, Inc. in the aggregate principal
amount of $493,934 (pursuant to the Microserv Merger Agreement), Buyer
does not have any secured debt, any outstanding indebtedness for
borrowed money, or any agreement pursuant to which Buyer can borrow
money from any Person. Accurate and complete copies of all agreements,
notes, amendments or other documents relating to all of the foregoing
have been delivered or are available to the Company and the
Shareholders. Subject to receiving consents from applicable lenders,
which consents are listed on Schedule 4.5, Buyer has, or by Closing
shall have the right to pay the obligations of Buyer under the Notes to
the Shareholders as and when such obligations become due unless a
default is declared under Buyer's senior and subordinated loan
documents.
4.5 Consents. Except as set forth on Schedule 4.5 attached hereto, no
consent, approval, authorization, order, license, permit, filing or
registration with any governmental entity or other regulatory body is
required of Buyer or Merger Sub as a condition of their execution,
delivery or performance of this Agreement, the Notes, or any other
agreements to which Buyer or Merger Sub are or become a party pursuant
to this Agreement or their respective consummations of the
Transactions.
4.6 SEC Filings. Buyer has timely filed with the SEC all of the
reports that it has been required to file pursuant to Section 13 or 14
of the Securities Exchange Act of 1934, as amended (the "1934 Act") in
respect of all periods, events or stockholder actions since April 1,
2002 ("Buyer SEC Documents"). As of the time it was filed with the SEC
(or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing): (i) each of the Buyer SEC
Documents complied in all material respects with the applicable
requirements of the 1934 Act; and (ii) none of the Buyer SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
4.7 Questionable Payments. Neither Buyer and Merger Sub, nor any of
the current or former shareholders, directors, executives, officers,
representatives, agents or employees of Buyer and Merger Sub (when
acting in such capacity or otherwise on behalf of Buyer and Merger Sub
or any of its predecessors): (a) has used or is using any corporate
funds for any illegal contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) has used or is
using any corporate funds for any direct or indirect unlawful payments
to any foreign or domestic government officials or employees; (c) has
violated or is violating any provision of the Foreign Corrupt Practices
Act of 1977; (d) has established or maintained, or is maintaining, any
unlawful or unrecorded fund of corporate monies or other properties;
(e) has made at any time since January 1, 2002, any false or fictitious
entries on the books and records of Buyer and Merger Sub; (f) has made
any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment of any nature using corporate funds or otherwise on
behalf of Buyer and Merger Sub; or (g) has made any material favor or
gift that is not deductible for federal income tax purposes using
corporate funds or otherwise on behalf of Buyer and Merger Sub.
4.8 Brokerage Fees. Except for Fairmount Partners LP, no Person
acting on behalf of Buyer and Merger Sub is or shall be entitled to any
brokerage or finder's fee in connection with the Transactions.
4.9 Proceedings and Judgments.
4.9.1 Except as set forth on Schedule 4.9 and except for matters
that would not reasonably be expected to have a material adverse effect
on the business of Buyer and Merger Sub: (i) no material Proceeding is
currently pending or, to the knowledge of Buyer, threatened, to which
either Buyer or Merger Sub is or was a party, or by which either Buyer
or Merger Sub or any Assets or business of the either Buyer or Merger
Sub is or was affected; (ii) no material Judgment is currently
outstanding against Buyer or Merger Sub, or by which the Buyer or
Merger Sub or any of their respective Assets or business is or was
affected; and (iii) no material breach of contract, breach of warranty,
tort, negligence, infringement, product liability, discrimination,
wrongful discharge or other claim of any nature is being asserted or
threatened by or against either Buyer or Merger Sub, and, to the
knowledge of Buyer, there is no basis for any such claim. Except as
set forth on Schedule 4.9, no event has occurred, and no claim, dispute
or, to the knowledge of Buyer and Merger Sub, other condition or
circumstance exists, that would reasonably be expected to directly or
indirectly give rise to or serve as a basis for the commencement of any
material Proceeding described in this Section 4.9.1.
4.9.2 There is no proposed Judgment that, if issued or otherwise
put into effect, (i) would reasonably be expected to have a material
adverse effect on the business, condition, Assets, technology,
liabilities, operations, employees, financial performance, revenues,
net income, political environment, economic environment or prospects of
or with respect to the Company (or on any aspect or portion thereof) or
on the ability of Buyer or Merger Sub to comply with or perform any
covenant or obligation under this Agreement, or (ii) would reasonably
be expected to have the effect of preventing, delaying, making illegal
or otherwise interfering with any of the transactions contemplated by
this Agreement.
4.10 Compliance with Laws; Permits. Except as otherwise provided in
the Schedules hereto, each of Buyer and Merger Sub are in material
compliance with each Judgment and with each Law that is applicable it,
including Laws relating to Employee Benefit Plans. Each of Buyer and
Merger Sub have obtained and hold all material Permits required for the
lawful operation of its business as and where such business is
presently conducted.
4.11 Tangible Property. Each of Buyer and Merger Sub has good and
marketable title to all of its Tangible Property free and clear of any
Encumbrances, except for liens in connection with Indebtedness
referenced in Section 4.4 hereof or on Schedule 4.4 attached hereto.
All of Buyer's and Merger Sub's Tangible Property is located at such
entities' respective offices or facilities and each such entity has the
right to require the immediate return of any of its Tangible Property
which is not located at its offices or facilities. All Tangible
Property of the Company, wherever located, (i) is in good condition,
ordinary wear and tear excepted, and (ii) materially complies with, and
is being operated and otherwise used in material compliance with, all
applicable Laws.
4.12 Employees and Independent Contractors.
4.12.1 Buyer and Merger Sub are in material compliance with all Laws
relating to employment practices.
4.12.2 Buyer and Merger Sub are not a party to or bound by any union
or collective bargaining Contract.
4.12.3 Since January 1, 2001, Buyer and Merger Sub have not
experienced any labor problem that was or is material to it.
4.13 Contracts. With the exception of matters that would not
reasonably be expected to have a material adverse effect on the
business operations and financial condition of Buyer and Merger Sub:
(i) each contract with Buyer's and Merger Sub's customers are valid and
in full force and effect, and are enforceable by Buyer and Merger Sub
in accordance with its terms, (ii) neither Buyer nor Merger Sub, or to
their knowledge, any other Person has violated, breached, or declared
or committed any default under, any Contract to which either Buyer or
Merger Sub is a party.
4.14 Full Disclosure. No representation or warranty made by Buyer and
Merger Sub in this Agreement or pursuant hereto (a) contains any untrue
statement of any fact; or (b) omits to state any fact that is necessary
to make the statements made, in the context in which made, not false or
misleading in any respect. The copies of documents attached as
Schedules to this Agreement or otherwise delivered to the Company in
connection with the transactions contemplated hereby, are accurate and
complete, and are not missing any amendments, modifications,
correspondence or other related papers which would be pertinent to the
Company's understanding thereof in any respect. To the best of Buyer
and Merger Sub's knowledge, there is no fact that has not been
disclosed to the Company in the Schedules to this Agreement or
otherwise in writing, that was or is or, so far as either Buyer and
Merger Sub can reasonably foresee, will have a Material Adverse Effect.
Section 5: Closing Deliveries
5.1 The Company's and the Shareholders' Obligations at Closing. At
the Closing (or in the case of item 5.1.1 within a reasonable period of
time after Closing), the Company and the Shareholders shall deliver the
following to Buyer and Merger Sub:
5.1.1 Certificates representing all issued and outstanding shares
of Company Common Stock.
5.1.2 All instruments or documents necessary to change the names of
the individuals who have access to or are authorized to make
withdrawals from or dispositions of all bank accounts, other accounts,
certificates of deposits, marketable securities, other investments,
safe deposit boxes, lock boxes and safes of the Company described on
Schedule 3.4 and all keys and combinations to all safe deposit boxes,
lock boxes and safes of the Company and other depositories described on
Schedule 3.4.
5.1.3 The Articles of Merger and, if applicable, the Certificate of
Merger, each in form and substance acceptable to the parties, duly
executed by the Company.
5.1.4 The original (or facsimile) signed copies of all Consents
listed on Schedule 3.2.
5.1.5 The Registration Rights Agreement duly executed by the each
of the Shareholders.
5.1.6 All of the existing original minute books, stock and share
books and similar records of the Company and duly executed
resignations, dated the Closing Date, of all directors and officers of
the Company other than as specified by Buyer.
5.1.7 Good standing certificate of the Company dated no earlier
than ten (10) days before the Closing Date, from its jurisdiction of
incorporation.
5.1.8 A certificate of the Secretary of the Company as to the
incumbency and signatures of the officers of the Company executing this
Agreement.
5.1.9 Copies of the resolutions duly adopted by the board of
directors and shareholders of the Company authorizing the Company to
execute, deliver and perform this Agreement and the other agreements
and documents contemplated hereby and to consummate the Transactions
contemplated hereby and thereby, certified by an officer of the Company
as in full force and effect, without modification or rescission, on and
as of the Closing Date.
5.1.10 The General Release in the form attached hereto as Exhibit
5.1.10 (the "General Release") duly executed by each of the
Shareholders.
5.1.11 Receipts acknowledging payment to Shareholders of the Closing
Date Merger Consideration.
5.1.12 The Key Employee Agreement(s) in the form attached hereto as
Exhibit 5.1.12 (the Key Employee Agreements") duly executed by each Key
Employee.
5.1.13 Payoff statements or termination statements and any other
termination documents terminating all Encumbrances and claims in and to
the Assets of the Company and the shares of capital stock of the
Company (including, without limitation, liens recorded by Liberty
Bank), except those Encumbrances which Buyer agrees in writing to
assume.
5.1.14 The Restrictive Covenant Agreement in the form attached
hereto as Exhibit 5.1.14 (the "Restrictive Covenant Agreement") duly
executed by each of the Shareholders.
5.1.15 An Investor Suitability Questionnaire (to be attached as
Exhibit 3.24.11 hereof) delivered by each Shareholder.
5.1.16 All documents pertaining to the transfer of the Excluded Real
Property and related debt from the Company.
5.1.17 All other agreements, certificates, instruments, financial
statement certifications and documents reasonably requested by Buyer in
order to fully consummate the Transactions and carry out the purposes
and intent of this Agreement.
5.2 Buyer's and Merger Sub's Obligations at Closing. At the Closing,
Buyer and Merger Sub shall deliver the following to the Shareholders:
5.2.1 Certificates representing the Buyer Common Shares issued to
the Shareholders as contemplated by the Ownership Schedule.
5.2.2 The Notes duly executed by Buyer, in amounts set forth on the
Ownership Schedule.
5.2.3 With respect to the Cash Payment, checks or wire transfers
delivered to each Shareholder in amounts consistent with the Ownership
Schedule.
5.2.4 The Certificate of Merger and, If required to be executed by
Merger Sub in accordance with applicable Law, the Articles of Merger,
each duly executed by Merger Sub.
5.2.5 The Registration Rights Agreement in the form attached hereto
as Exhibit 5.2.5 (the "Registration Rights Agreement") duly executed by
Buyer.
5.2.6 The Key Employee Agreements duly executed by Buyer.
5.2.7 Good standing certificates or certificates of existence or
subsistence, as the case may be, for each of Buyer and Merger Sub,
dated no earlier than ten (10) days before the Closing Date, from the
Commonwealth of Virginia and State of Delaware, as the case may be.
5.2.8 Copies of the resolutions duly adopted by the respective
boards of directors of each of Buyer and Merger Sub authorizing Buyer
and Merger Sub, respectively, to execute, deliver and perform this
Agreement and the documents contemplated hereby, and to consummate the
Transactions contemplated hereby and thereby, certified by an officer
of Buyer and Merger Sub, respectively, as in full force and effect,
without modification or rescission, on and as of the Closing Date.
5.2.9 A certificate of an appropriate officer of each of Buyer and
Merger Sub as to the incumbency and signatures of the officers of Buyer
and Merger Sub, respectively, executing this Agreement.
5.2.10 All other agreements, certificates, instruments and documents
reasonably requested by the Company or the Shareholders in order to
fully consummate the Transactions and carry out the purposes and intent
of this Agreement.
Section 6: Certain Rights and Obligations of Buyer and the
Shareholders after Closing
6.1 Restrictions on Dispositions of Buyer Common Shares. From and
after the Closing Date, none of the Shareholders shall sell, assign,
give, pledge or otherwise transfer, dispose of or reduce his or its
risk relating to any of his Buyer Common Shares until the twelve month
anniversary of the Closing Date has expired and, thereafter, only in
compliance with applicable federal and state securities Laws.
6.2 Cooperation with Buyer and the Surviving Corporation. From and
after the Closing Date, (a) each of the Shareholders shall fully
cooperate to transfer to Buyer and the Surviving Corporation the full
control of the Business and Assets of the Company, (b) none of the
Shareholders shall take any action, directly or indirectly, alone or
together with others, which obstructs or impairs the assumption by
Buyer and the Surviving Corporation of control of the Business and
Assets of the Company; and (c) the Shareholders shall promptly deliver
to Buyer and the Surviving Corporation all correspondence, papers,
documents and other items and materials received by them or found to be
in their possession which pertain to the Business or the Assets of the
Company and (d) the Shareholders shall use their reasonable best
efforts to cooperate with Buyer and the Surviving Corporation in
connection with the preparation and audit of any financial statements
of the Company, including, without limitation, where appropriate, the
signing of such reasonable accurate management representation letters
as are required in connection with such audit. At any time and from
time to time after the Closing Date, at Buyer's request and without
further consideration, each of the Shareholders shall promptly execute
and deliver all such further agreements, certificates, instruments and
documents and perform such further actions as Buyer may reasonably
request, in order to fully consummate the Merger and the other
Transactions contemplated hereunder and to fully carry out the purposes
and intent of this Agreement, including, but not limited to, such
documents and actions as may be required in connection with the
continuation or termination of the Employee Benefit Plans of the
Company, the adoption by the Surviving Corporation of Buyer's Employee
Benefit Plans, and the filing of tax returns of the Company for all
periods ending on, before or including the Closing Date.
6.3 Taxes.
6.3.1 Tax Periods Through the Closing Date. The Shareholders shall
prepare or cause to be prepared all Tax Returns for the Company for all
Tax periods ending prior to the Closing Date which are to be filed
prior to the Closing Date. The Buyer shall prepare or cause to be
prepared and file or cause to be filed all Tax Returns for the Company
for all Tax periods ending on or prior to the Closing Date ("Pre-
Closing Tax Periods") which are required to be filed after the Closing
Date. The Buyer shall provide the Shareholders with copies of such Tax
Returns at least ten days prior to the filing date (including
applicable extension periods) and the Shareholders shall have an
opportunity to review such Tax Returns. The Buyer shall accept any
reasonable comments of Shareholders regarding such Tax Returns. The
Shareholders shall be responsible for all Taxes of the Company for all
Pre-Closing Tax Periods and shall pay to (or as directed by) the
Company any Taxes of the Company for all Pre-Closing Tax Periods to the
extent such Taxes (x) have not already been paid by the Company prior
to the Closing or (y) are not reflected in the accrual for Taxes
(rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) on the Closing Date
Balance Sheet or the Actual Closing Net Assets statement, and such
payments shall be made in each applicable case within fifteen (15) days
after the date when the Company notifies the Shareholders of an amount
of such Taxes that is payable to the relevant Government Body.
6.3.2 Tax Periods Straddling the Closing Date. The Buyer shall
prepare or cause to be prepared and file or cause to be filed any Tax
Returns of the Surviving Corporation for Tax periods which begin before
the Closing Date and end after the Closing Date ("Straddle Tax
Periods"). The Shareholders shall pay to the Buyer an amount equal to
the portion of such Taxes which relates to the portion of such Straddle
Tax Period ending on the Closing Date to the extent such Taxes are not
reflected in the accrual for Taxes (rather than any reserve for
deferred Taxes established to reflect timing differences between book
and Tax income) shown on the Closing Date Balance Sheet or the Actual
Closing Net Assets statement. Any such payment for Taxes for any
Straddle Tax Period shall be made by the Shareholders to the Buyer
within fifteen (15) days of the date when the Surviving Corporation
notifies the Shareholders of an amount of such Taxes that is payable to
the relevant Government Body. For purposes of this Section 6.3.2, in
the case of any Taxes that are imposed on a periodic basis and are
payable for a Straddle Tax Period, the portion of such Tax which
relates to the portion of such Tax period ending on the Closing Date
shall (x) in the case of any Tax other than Taxes based upon or related
to income or receipts, be deemed to be the amount of such Tax for the
entire Tax period multiplied by a fraction the numerator of which is
the number of days in the Tax period ending on the Closing Date and the
denominator of which is the number of days in the entire Tax period,
and (y) in the case of any Tax based upon or related to income or
receipts be deemed equal to the amount which would be payable if the
relevant Tax period ended on the Closing Date. Any credits relating to
a Straddle Tax Period shall be taken into account as though the
relevant Tax period ended on the Closing Date. All determinations
necessary to give effect to the foregoing allocations shall be made in
a manner consistent with prior practice (to the extent permitted by
law) of the Company.
6.3.3 Tax Periods After the Closing Date. Buyer shall timely
prepare and file or cause to be timely prepared and filed all Tax
Returns for the Surviving Corporation required to be filed for taxable
periods beginning after the Closing Date. Buyer shall timely pay or
cause to be paid the amount of Taxes due shown on such Returns.
6.4 Transfer Taxes. Notwithstanding any other provisions of this
Agreement to the contrary, the Shareholders shall pay all sales, use,
stock transfer, stamp, recording, real property transfer and similar
taxes, if any, required to be paid in connection with the Merger
contemplated in this Agreement.
6.5 Reportable Transactions. The Shareholders and the Surviving
Corporation agree to retain all documents and other records for the
appropriate period of time as set forth in Treasury Regulation Section
1.6011-4(g) which relate to any Reportable Transaction in which the
Company has participated.
6.6 Cooperation on Tax Matters.
6.6.1 Buyer, the Surviving Corporation, and the Shareholders shall
cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant to this
Section and any Proceeding. Such cooperation shall include the
retention and (upon the other party's request) the provision of records
and information which are reasonably relevant to any such audit,
litigation or other Proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Surviving
Corporation and the Shareholders agree (A) to retain all books and
records with respect to Tax matters pertinent to the Company relating
to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified
by Buyer or Shareholders, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements
entered into with any Governmental Body, and (B) to give the other
party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so
requests, the Surviving Corporation and the Shareholders, as the case
may be, shall allow the other party to take possession of such books
and records.
6.6.2 Buyer shall provide Shareholders with notice of any written
inquiries, audits, examinations or proposed adjustments by the Internal
Revenue Service or any other Governmental Body, which relate to any Pre-
Closing Tax Periods within thirty days of receipt of such notice. The
Shareholders shall have the sole right to represent the interests of
the Company in any Tax audit or other Proceeding relating to any Pre-
Closing Tax Periods, to employ counsel of their choice at their
expense, and to settle any issues and to take any other actions in
connection with such Proceedings relating to such taxable periods;
provided, however, that the Shareholders shall use reasonable efforts
to inform Buyer of the status of any such Proceedings, shall provide
Buyer (at Buyer's cost and expense) with copies of any pleadings,
correspondence, and other documents as Buyer may reasonably request,
shall consult with Buyer prior to the settlement of any such
Proceedings and shall obtain the prior written consent of Buyer prior
to the settlement of any such Proceedings that would affect Buyer in
any taxable period ending after the Closing Date, which consent shall
not be unreasonably withheld. Buyer shall have the right to control
all other Tax audits or Proceedings of the Surviving Corporation;
provided, however, that Buyer shall not settle any such Proceedings
without the consent of the Shareholders, which consent shall not be
unreasonably withheld, if the Shareholders would incur any additional
Taxes for (i) Pre-Closing Tax Periods or (ii) the portion of the
Straddle Tax Period ending on the Closing Date. Buyer and the
Surviving Corporation shall execute and deliver to the Shareholders
such powers of attorney and other documents as may be necessary or
appropriate to give effect to the foregoing.
6.6.3 Buyer and the Shareholders agree, upon request, to use their
best reasonable efforts to obtain any ruling, certificate or other
document from any Governmental Body or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be
imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
6.7 Disposition of Company Employee Benefit Plans. As soon as is
practicable after the Effective Time, Buyer shall review the Company
Employee Benefit Plans to determine which such plans should remain in
effect as plans of the Surviving Corporation and which should be
replaced with Buyer's Employee Benefit Plans, with a view toward
replacing all of the Company Employee Benefit Plans with Buyer's
Employee Benefit Plans except where cost factors or unusual
circumstances dictate otherwise.
6.8 Termination of Certain Insurance Policies. As soon as is
practicable after the Effective Time, Buyer and the Shareholders, if
applicable, shall terminate each of the term life (applicable to the
Shareholders) and key man (applicable to L.L. Whiteside) insurance
policies set forth on Schedule 3.16 (the "Policies").
Section 7: Indemnification
7.1 The Company's and Shareholders' Indemnification. Subject to
Sections 7.4 and 7.5 hereof, the Shareholders, with such indemnifying
parties being collectively referred to herein as the "Seller Group",
jointly and severally (but with respect to Dan Lane, severally, but not
jointly), shall indemnify and hold harmless Buyer, Merger Sub and the
Surviving Corporation, and their respective successors and assigns, and
their respective directors, officers, employees, agents,
representatives, subsidiaries and affiliates (each, a "Buyer
Indemnified Party" and collectively, the "Buyer Indemnified Parties")
from and against any and all actions, suits, claims, demands, debts,
liabilities, obligations, losses, damages, costs and expenses including
reasonable attorney's fees and court costs (each a "Loss" and
collectively, "Losses"), arising out of or caused by, directly or
indirectly, any of the following:
7.1.1 Any breach of any warranty or representation made by any of
the Seller Group in or pursuant to this Agreement.
7.1.2 Any failure or refusal by any of the Seller Group to satisfy
or perform any covenant in this Agreement or any agreement or document
contemplated hereby required to be satisfied or performed by it.
7.1.3 Any Obligations (i) in respect of Taxes of the Company (or
any of its predecessors or successors) for any Pre-Closing Tax Periods
and the portion through the end of the Closing Date for any Straddle
Tax Period and (ii) for the unpaid Taxes of any Person under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local,
or foreign law) as a transferee or successor, by contract or otherwise;
provided, however, in the case of (i) and (ii), Shareholders shall only
be liable to the extent such Taxes exceed the amount, if any, reserved
for such Taxes on the Closing Balance Sheet or the Actual Closing Net
Assets statement.
7.1.4 The Excluded Real Property or the transfer thereof from the
Company (including any Tax related thereto to the extent such Taxes
exceed the amount, if any, reserved for such Taxes on the Closing
Balance Sheet or the Actual Closing Net Assets Statement).
7.1.5 Any claims filed against the Company/Surviving Corporation by
or on behalf of former shareholders of the Company.
7.1.6 The Policies (as defined in Section 6.8 hereof).
7.2 Indemnification by Buyer. Subject to Sections 7.4 and 7.5 hereof,
Buyer shall indemnify, defend and hold harmless the Shareholders and
their respective officers, managers, employees, agents, representatives
and successors and assigns (each a "Seller Indemnified Party" and,
collectively, the "Seller Indemnified Parties"), from and against any
and all Losses, arising out of or caused by, directly or indirectly,
any or all of the following:
7.2.1 Any breach of any warranty or representation made by Buyer or
Merger Sub in or pursuant to this Agreement.
7.2.2 Any failure or refusal by Buyer or Merger Sub to satisfy or
perform any covenant in this Agreement or any agreement to be executed
and delivered pursuant to this Agreement that is required to be
satisfied or performed by them.
7.3 Indemnification Procedures. With respect to each event,
occurrence or matter (an "Indemnification Matter") as to which any
member of the Buyer Indemnified Parties or the Seller Indemnified
Parties, as the case may be (the "Indemnitee") is entitled to
indemnification from Buyer or the Seller Group, as the case may be (the
"Indemnitor") under Section 7.1 or 7.2:
7.3.1 Within ten (10) days after the Indemnitee receives written
documents underlying the Indemnification Matter or, if the
Indemnification Matter does not involve a third party action, suit,
claim or demand, promptly after the Indemnitee first has actual
knowledge of the Indemnification Matter, the Indemnitee shall give
notice to the Indemnitor ("Indemnification Notice") of the nature of
the Indemnification Matter and the amount demanded or claimed in
connection therewith, together with copies of any such written
documents; provided, however, that failure to timely provide such
notice shall not be a defense to the underlying indemnity claim except
to the extent that delay in providing such notice has damaged the
Indemnitor.
7.3.2 If a third party action, suit, claim or demand is involved,
then, upon receipt of the Indemnification Notice, the Indemnitor shall,
at its expense and through counsel of its choice, promptly assume and
have sole control over the litigation, defense or settlement (the
"Defense") of the Indemnification Matter, except that (i) the
Indemnitee may, at its option and expense and through counsel of its
choice, participate in (but not control) the Defense; (ii) if the
Indemnitee reasonably believes that the handling of the Defense by the
Indemnitor may have a material adverse effect on the Indemnitee, its
business or financial condition, or its relationship with any customer,
prospect, supplier, employee, salesman, consultant, agent or
representative, then the Indemnitee may, at its option and expense and
through counsel of its choice, assume control of the Defense, provided
that the Indemnitor shall be entitled to participate in the Defense at
its expense and through counsel of its choice; (iii) the Indemnitor
shall not consent to any Judgment, or agree to any settlement, without
the Indemnitee's prior written consent (which consent shall not be
unreasonably withheld) unless the result of such settlement is the
complete and final release of Indemnitee with respect to the matter in
dispute; and (iv) if the Indemnitor does not promptly assume control
over the Defense or, after doing so, does not continue to prosecute the
Defense in good faith, the Indemnitee may, at its option and through
counsel of its choice, but at the Indemnitor's expense, assume control
over the Defense. In any event, the Indemnitor and the Indemnitee
shall fully cooperate with each other in connection with the Defense,
including by furnishing all available documentary or other evidence as
is reasonably requested by the other.
7.3.3 All amounts owed by the Indemnitor to the Indemnitee (if any)
shall be paid in full within ten (10) business days after a final
Judgment (without further right of appeal) determining the amount owed
is rendered, or after a final settlement or agreement as to the amount
owed is executed (the "Indemnification Amount"). If the
Indemnification Amount owed by the Indemnitor to the Indemnitee is not
paid when due, interest shall accrue on such amount at the rate of ten
percent (10%) per annum compounded until paid in full.
7.4 Limits on Indemnification. Indemnitor's liability under this
Section 7 shall be limited as follows:
7.4.1 Except with respect to Carve-Outs (as defined below), the
Buyer Indemnified Parties, on the one hand, and the Seller Indemnified
Parties, on the other hand, shall not be entitled to be indemnified for
Losses under this Section 7 unless the aggregate of such Losses arising
hereunder for which indemnification liability would, but for this
proviso, exist equals or exceeds $50,000; provided, however, that at
such time as the aggregate of such Losses equals or exceeds $50,000,
the Buyer Indemnified Parties or Seller Indemnified Parties, as the
case may be, shall be entitled to be indemnified against the full
amount of such Losses that have been incurred or suffered by such
parties (and not merely the portion in excess of $50,000). For
purposes of this Agreement, a "Carve-Out" shall mean an Indemnification
Matter involving (a) recklessness, intentional misrepresentation, fraud
or a criminal matter, (b) title to the Assets of the Company or the
capital stock of the Company; (c) the failure of the Shareholders to
deliver to Buyer at Closing shares of Company Common Stock representing
100% of the issued and outstanding capital stock of the Company,
(d) Taxes, (e) environmental matters and other Losses with respect to
the Excluded Real Property, (f) covenants or other obligations to be
performed after Closing (including losses related to the insurance
policies listed on Schedule 3.16); or (g) the Policies.
7.4.2 Except with respect to Carve-Outs, (i) the maximum aggregate
liability that the Buyer Indemnified Parties or the Seller Indemnified
Parties, as applicable, may have with respect to claims for
indemnification under this Agreement will be an amount equal to the
Merger Consideration, as adjusted pursuant to Section 2.8 hereof, and
(ii) the maximum liability that Dan Lane shall have with respect to
claims for indemnification under this Agreement shall be equal to his
portion of Merger Consideration received pursuant to this Agreement, as
adjusted pursuant to Section 2.8 hereof.
7.4.3
(a) Subject to Section 7.4.3(b), Dan Lane shall be responsible for a
portion of each indemnification claim made by a Buyer Indemnified Party
equal to his Ownership Interest multiplied by the dollar amount of the
applicable claim.
(b) Notwithstanding anything contained in this Section 7
to the contrary, with respect to a claim that (i) certain shares of
Company Common Stock were delivered to Buyer without good and
marketable title, free and clear of any Encumbrance or (ii) a
Shareholder has breached a representation or warranty made by such
Shareholder pursuant to Section 3.24 hereof, the applicable
Shareholder(s) whose shares of Company Common Stock are the subject of
the claim or who breached the representation or warranty, as the case
may be, shall be solely liable as an indemnitor with respect to such
claim (and shall be responsible for the entire amount of such claim)
and no other Shareholder shall have any obligation as an indemnitor in
respect thereof.
7.5 Setoff.
7.5.1 Buyer's rights to indemnification (with respect to undisputed
Indemnification Matters or, if disputed by the Shareholders, such
Indemnification Matters resolved or settled (per the dispute resolution
provisions set forth in this Agreement) in favor of Buyer) pursuant to
this Section 7 shall be satisfied by (i) first, its right to setoff any
sums for which a Buyer Indemnified Party is entitled to indemnification
under this Section 7 against either (with such decision as to (x) or
(y) below being in the discretion of the applicable Shareholder,
subject to the last sentence of this Section 7.5.1) (x) (a) first,
amounts due under the Notes, and (b) next, payments of Deferred Merger
Consideration contemplated by Section 2.9 hereof, or (y) in connection
with claims made by a Buyer Indemnified Party for which an
Indemnification Notice is delivered on or before the first annual
anniversary of the Closing Date, the delivery by the Shareholders to
Buyer of a number of Closing Shares equal to the dollar value of the
unsatisfied claim(s) or portion thereof divided by the Closing Shares
Price; and (ii) second, to the extent the rights contemplated above
with respect to the Notes, Deferred Merger Consideration and Buyer
Common Shares are not sufficient or available to satisfy one or more
claims, by the Shareholders making payment in immediately available
funds. Each Shareholder shall deliver a written notice (the "Election
Notice") to Buyer specifying its election with respect to (i)(x) and
(i)(y) above within five days of the date of the determination of the
amount of Losses related thereto (either by reason of the Losses being
undisputed by the passage of time contemplated herein or the Losses
being resolved by the parties). If the Election Notice is not
delivered within the time period specified in the previous sentence,
the Losses related to such Indemnification Matter shall be satisfied
first as contemplated in (i)(x) above and second as contemplated by
item (i)(y) above.
7.5.2 If any Indemnification Matters for which a Buyer Indemnified
Party is the Indemnitee are pending at a time when Buyer is required to
pay or deliver any such amounts due under the Notes or Deferred Merger
Consideration to the Indemnitor, then Buyer shall have the right, upon
notice to the Indemnitor, to withhold from such payment or delivery,
until final determination of such pending Indemnification Matters, the
total amount for which the Indemnitor may become liable as a result
thereof, as determined by Buyer reasonably and in good faith; provided,
however, that such disputed and withheld amounts shall be paid to a
mutually agreed upon escrow agent to be subject to an escrow agreement
acceptable to the Shareholders and Buyer.
7.5.3 The twelve (12) month prohibition on transfer of the Closing
Shares as contained in the Registration Rights Agreement is
incorporated herein by reference and shall be deemed extended hereunder
if any Indemnification Matters for which a Buyer Indemnified Party is
the Indemnittee are pending at the end of such twelve month period
until final determination of such pending Indemnification Matters, and
if applicable, satisfaction thereof; provided, however, that the
extension of the prohibition on transfer shall only apply to that
number of Closing Shares which the Indemnitor may become liable to
deliver as a result of such Indemnification Matters, as determined by
Buyer reasonably and in good faith. Any transfer, sale, assignment,
pledge, encumbrance or other disposition of Closing Shares in violation
of the restriction contemplated in this Section 7.5.3 or in the
Registration Rights Agreement shall be null and void.
7.5.4 If it is necessary for the Shareholders to deliver Closing
Shares to Buyer pursuant to Section 7.5.1, each Shareholder shall,
within ten days of the Losses being undisputed by the passage of time
contemplated herein or the Losses being resolved by the parties, return
to Buyer any certificate representing such Closing Shares for
cancellation and Buyer, in exchange, will issue or cause to be issued
to such Shareholder a new certificate reflecting the appropriate number
of Closing Shares held by such Shareholder after the reduction
contemplated in Section 7.5.1 herein. If any Shareholder does not
deliver to Buyer its certificate as contemplated in the preceding
sentence, (i) such certificate shall immediately be deemed cancelled
and Buyer shall mark its records to indicate that such certificate has
been cancelled and (ii) Buyer shall issue a new certificate to such
Shareholder in accordance with the previous sentence. Each Shareholder
hereby gives the Secretary of Buyer an irrevocable power of attorney to
make such cancellations on Buyer's books on behalf of Buyer in
accordance with the foregoing.
.6 Commercially Reasonable Efforts. The Buyer shall use commercially
reasonable efforts (including exercising setoff rights contemplated by
Section 7.5 hereof, if available) to obtain payments severally from the
Shareholders based on their respective Ownership Interests for any
Indemnification Matter hereunder for a period of thirty (30) days prior
to seeking payment with respect to such Indemnification Matter against
any one or more Shareholders on a joint and several basis; provided,
however, that "commercially reasonable efforts" (as contemplated
hereby) shall not require Buyer to exhaust all of its rights and
remedies against the Shareholders on a several basis; provided,
further, that nothing in this Section 7.6 shall be interpreted to
modify or change the joint and several obligations of the Shareholders
under Section 7.
Section 8: Other Provisions
8.1 Intentionally Omitted.
8.2 Fees and Expenses. Except with respect to indemnification claims
which shall be governed by Section 7, Buyer and Merger Sub shall pay
all of the fees and expenses incurred by them, and the Company and the
Shareholders shall pay all of the fees and expenses incurred by the
them, in negotiating and preparing this Agreement (and all other
Contracts and documents executed in connection herewith or therewith)
and in consummating the transactions contemplated hereby.
8.3 Notices. Any notices, requests, demands or other communications
required or permitted to be sent hereunder shall be delivered
personally or by facsimile, sent by overnight or international courier
or mailed by registered or certified mail, return receipt requested, to
the following addresses, and shall be deemed to have been received on
the day of personal delivery or delivery by facsimile, one business day
after deposit with an overnight domestic courier or three business days
after deposit in the mail:
If to Buyer or Merger Sub / c/o Halifax Corporation
Surviving Corporation: 5250 Cherokee Avenue
Alexandria, Virginia 22312
Attn: Joseph Sciacca, Chief
Financial Officer
Telefax: (703) 658-2426
With a copy to: Blank Rome LLP
One Logan Square
Philadelphia, PA 19103
Attn: Barry H. Genkin, Esq.
Telefax: (215) 832-5514
If to the Company or any Shareholder: L.L. Whiteside
2501 East Loop 820 N.
Fort Worth, Texas 76118
Telefax: 817-284-7216
Charles A. Harper
Dan Lane
With a copy to: Holland, Johns, Schwartz & Penny LLP
306 West Seventh Street
Suite 500
Fort Worth, TX 76102-4982
Attn: Margaret E. Holland
Telefax: 817-332-3140
8.4 Survival. All representations and warranties (and related rights
to indemnification contained herein) made by any party hereto pursuant
to this Agreement or any Ancillary Document (as defined below) shall
survive the date of this Agreement, the Closing Date and the
consummation of the Transactions for a period of twelve (12) months
from the Closing Date and in order to obtain indemnification with
respect to such representations and warranties, an Indemnification
Notice must be delivered within such twelve (12) month period;
provided, however, that there shall be no limitation on the survival of
the representations and warranties (and the related indemnification
obligations) that relate to Carve-Outs and indemnification rights shall
be available notwithstanding the date of delivery of any
Indemnification Notice. All statements of fact contained in this
Agreement or in any certificate, document or statement (including,
without limitation, the Financial Statements) delivered pursuant hereto
or in connection with the consummation of the Transactions
(collectively, the "Ancillary Documents") shall be deemed
representations and warranties.
8.5 Reliance; Interpretation of Representations. Notwithstanding any
right of Buyer and Merger Sub to fully investigate the affairs of the
Company and the Shareholders (and vice versa) and notwithstanding any
knowledge of facts determined or determinable by Buyer or Merger Sub
pursuant to such investigation or right of investigation (and vice
versa), Buyer and Merger Sub, on the one hand, and the Company and the
Shareholders, on the other hand, have the right to rely fully upon, and
have relied upon, the representations, warranties, covenants and
agreements contained in this Agreement or in any document delivered to
them or any representatives in connection with the transactions
contemplated by this Agreement, which representations and warranties
are bargained for assurances. Each warranty, representation and
covenant contained in this Agreement is independent of all other
warranties, representations and covenants contained herein (whether or
not covering identical or related subject matter) and must be
independently and separately complied with and satisfied.
8.6 Entire Understanding. This Agreement, together with the Exhibits
and Schedules hereto, state the entire understanding among the parties
with respect to the subject matter hereof, and supersede all prior oral
and written communications and agreements, and all contemporaneous oral
communications and agreements, with respect to the subject matter
hereof, including all confidentiality agreements and letters of intent
previously entered into among some or all of the parties hereto. No
amendment or modification of this Agreement shall be effective unless
in writing and signed by the party against whom enforcement is sought.
8.7 Parties in Interest; Assignment. This Agreement shall bind,
benefit, and be enforceable by and against Buyer, Merger Sub and the
Company and their respective successors and assigns, and the
Shareholders and their respective heirs, estates and personal
representatives. No party shall in any manner assign any of its or his
rights or obligations under this Agreement without the express prior
written consent of the other parties.
8.8 Waivers. Except as otherwise expressly provided herein, no waiver
with respect to this Agreement shall be enforceable unless in writing
and signed by the party against whom enforcement is sought. Except as
otherwise expressly provided herein, no failure to exercise, delay in
exercising, or single or partial exercise of any right, power or remedy
by any party, and no course of dealing between or among any of the
parties, shall constitute a waiver of, or shall preclude any other or
further exercise of, any right, power or remedy.
8.9 Severability. If any provision of this Agreement is construed to
be invalid, illegal or unenforceable, then the remaining provisions
hereof shall not be affected thereby and shall be enforceable without
regard thereto.
8.10 Counterparts; Facsimile. This Agreement may be executed in any
number of counterparts, including by facsimile, each of which when so
executed and delivered shall be an original hereof, and it shall not be
necessary in making proof of this Agreement to produce or account for
more than one counterpart hereof.
8.11 Section Headings. Section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a
part of this Agreement, and shall not affect its interpretation.
8.12 References. All words used in this Agreement shall be construed
to be of such number and gender as the context requires or permits.
8.13 Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY
THEREIN, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
8.14 Arbitration; Jurisdiction and Process.
8.14.1 The parties shall use their best efforts to amicably resolve
any disputes, controversies or misunderstandings concerning the terms
and provisions contained in this Agreement prior to seeking arbitration
pursuant to this Section 8.14. Should the parties be unable to
amicably resolve disputes, controversies and misunderstandings
concerning this Agreement, other than claims for equitable remedies and
except as otherwise provided herein (including disputes concerning the
Merger Consideration adjustment and Deferred Merger Consideration
contemplated by Sections 2.8 and 2.9 hereof, respectively), all claims,
demands, disputes, controversies, differences or misunderstandings
between the parties arising out of, or by virtue of, this Agreement
shall be submitted to and determined by arbitration in accordance with
this Section 8.14. With respect to any matter being arbitrated
hereunder, an arbitrator shall be mutually agreed upon by Buyer and the
Shareholders. If Buyer and the Shareholders are unable to agree upon
such arbitrator, such arbitrator shall be selected by the Independent
Accountants. The matter shall be arbitrated in Wilmington, Delaware,
in accordance with the rules of the American Arbitration Association
applying the laws of Delaware. At any time before a decision of the
arbitrator has been rendered, the parties may resolve the dispute by
settlement. If the arbitrator resolves all disputes presented to it in
the manner proposed by one of the parties, the fees and expenses of the
arbitrator shall be paid for by the other party. In all other events,
the fees and expenses of the arbitrator relating to the dispute shall
be shared in the same proportion that a given party's position, on the
one hand, and the other disputing party's position, on the other hand,
initially presented to the arbitrator bears to the arbitrator's award.
The decision of the arbitrator shall (a) be binding and conclusive on
all parties and (b) not be appealable and shall include a finding for
payment of the costs of such arbitration. Judgment of a court of
competent jurisdiction may be entered upon the award and may be
enforced as such in accordance with the provisions of the award. The
parties may obtain discovery in aid of the arbitration to the fullest
extent permitted under law. All discovery disputes shall be resolved
by the arbitrator. This agreement to arbitrate is specifically
enforceable by the parties to this Agreement.
8.14.2 Subject to Section 8.14.1 hereof and except as provided
otherwise herein (including disputes concerning the Merger
Consideration adjustment and Deferred Merger Consideration contemplated
by Sections 2.8 and 2.9 hereof, respectively), in any action between or
among any of the parties, whether arising out of this Agreement or
otherwise, (a) each of the parties irrevocably consents to the
exclusive jurisdiction and venue of the federal and state courts
located in the state of Delaware, (b) if any such action is commenced
in a state court, then, subject to applicable law, no party shall
object to the removal of such action to any federal court located in
the State of Delaware, (c) each of the parties irrevocably waives the
right to trial by jury, (d) each of the parties irrevocably consents to
service of process by first class certified mail, return receipt
requested, postage prepaid, to the address at which such party is to
receive notice in accordance with Section 8.3, and (e) the prevailing
parties shall be entitled to recover their reasonable attorneys' fees
and court costs from the other parties.
8.15 No Third-Party Beneficiaries. No provision of this Agreement is
intended to or shall be construed to grant or confer any right to
enforce this Agreement, or any remedy for breach of this Agreement, to
or upon any Person other than the parties hereto, including any
customer, prospect, supplier, employee, contractor, salesman, agent or
representative of the Company.
Neutral Construction. In view of the fact that each of the parties
hereto have been represented by their own counsel and this Agreement
has been fully negotiated by all parties, the legal principle that
ambiguities in a documents are construed against the draftsperson of
that document shall not apply to this Agreement.
IN WITNESS WHEREOF, the parties have executed or caused to be
executed this Agreement effective as of the day and year first above
written.
HALIFAX CORPORATION
By: /s/ Charels L. McNew
Name: Charles L. McNew
Title: President & CEO
HALIFAX-ALPHANATIONAL ACQUISITION INC.
By: /s/ Charels L. McNew
Name: Charles L. McNew
Title: President
ALPHA NATIONAL TECHNOLOGY SERVICES, INC.
By: /s/ Larry L. Whiteside
Name: L.L. Whiteside
Title: Chief Executive Officer
THE SHAREHOLDERS:
/s/ Larry L. Whiteside
L.L. Whiteside
/s/ Charles A. Harper
Charles A. Harper
/s/ Morris Horn
Morris Horn
/s/ Dan Lane
Daniel Lane
[Signature page to Agreement and Plan of Merger]
EXHIBIT "1A"
Defined Terms
"Accounts Receivable" means (a) any right to payment for goods sold,
leased or licensed or for services rendered, whether or not it has been
earned by performance, whether billed or unbilled, and whether or not
it is evidenced by any Contract; (b) any note receivable; or (c) any
other receivable or right to payment of any nature.
"Actual Closing Net Assets" shall have the meaning specified in Section
2.8.3 of the Agreement.
"Articles of Merger" shall have the meaning specified in Section 2.2 of
the Agreement.
"Asset" means any real, personal, mixed, tangible or intangible
property of any nature, including Cash Assets, prepayments, deposits,
escrows, Accounts Receivable, Tangible Property, Real Property,
Software, Contract Rights, Intangibles and goodwill, and claims, causes
of action and other legal rights and remedies.
"Buyer Accountant" means Grant Thornton, LLP, or such other independent
accounting firm of internationally recognized standing selected by
Buyer for purposes of Section 2.8 of the Agreement.
"Buyer Common Shares" means shares of common stock, $0.24 par value, of
Buyer.
"Buyer SEC Documents" shall have the meaning specified in Section 4.6
of the Agreement.
"Calculation Dispute Notice" shall have the meaning specified in
Section 2.8.4 of the Agreement.
"Cash Asset" means any cash on hand, cash in bank or other accounts,
readily marketable securities, and other cash-equivalent liquid assets
of any nature.
"Cash Payment" shall have the meaning specified in Section 2.6 of the
Agreement.
"Closing" shall have the meaning specified in Section 2.2 of the
Agreement.
"Closing Balance Sheet" shall have the meaning specified in Section
2.8.1 of the Agreement.
"Closing Date" shall have the meaning specified in Section 2.2 of the
Agreement.
"Closing Shares" means solely the Buyer Common Shares delivered to the
Shareholders at Closing as part of the Closing Date Merger
Consideration.
"Closing Shares Price" means the greater of (i) the market price of a
Buyer Common Share on the Closing Date, or (ii) the average market
price of a Buyer Common Share over the fifteen (15) trading days
immediately prior to the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Common Stock" means shares of the common stock, $1.00 par
value, of the Company.
"Company Employee Benefit Plans" shall have the meaning specified in
Section 3.16.1 of the Agreement.
"Company Intangible" means all Software and other Intangibles owned,
marketed, licensed, supported, maintained, used or under development
by the Company.
"Company Owned Intangible" shall have the meaning specified in Section
3.13.2.
"Consent" means any consent, approval, order or authorization of, or
any declaration, filing or registration with, or any application,
notice or report to, or any waiver by, or any other action (whether
similar or dissimilar to any of the foregoing) of, by or with, any
Person, which is necessary in order to take a specified action or
actions in a specified manner and/or to achieve a specified result.
"Contract" means any written or oral contract, agreement, instrument,
order, arrangement, commitment or understanding of any nature,
including sales orders, purchase orders, leases, subleases, data
processing agreements, maintenance agreements, license agreements,
sublicense agreements, loan agreements, promissory notes, security
agreements, pledge agreements, deeds, mortgages, guaranties,
indemnities, warranties, employment agreements, consulting agreements,
sales representative agreements, joint venture agreements, buy-sell
agreements, options or warrants.
"Contract Right" means any right, power or remedy of any nature under
any Contract, including rights to receive property or services or
otherwise derive benefits from the payment, satisfaction or performance
of another party's Obligations, rights to demand that another party
accept property or services or take any other actions, and rights to
pursue or exercise remedies or options.
"Deferred Comp Shareholders" shall have the meaning specified in
Section 2.9.1 of the Agreement.
"Deferred Merger Consideration" shall have the meaning specified in
Section 2.9 of the Agreement.
"Deferred Merger Consideration Accounts" shall have the meaning
specified in Section 2.9.1 of the Agreement.
"Deferred Merger Consideration Price" means the greater of (i) the
market price of a Buyer Common Share on the date of payment of the
Deferred Merger Consideration, or (ii) the average market price of a
Buyer Common Share over the fifteen (15) trading days immediately prior
to such date of payment.
"Earnout Dispute Notice" shall have the meaning specified in Section
2.9.3 of the Agreement.
"Earnout Net Revenues" shall have the meaning specified in Section
2.9.1 of the Agreement.
"Earnout Statements" shall have the meaning specified in Section 2.9.2
of the Agreement.
"Effective Time" shall have the meaning specified in Section 2.2 of the
Agreement.
"Employee Benefit Plan" means any employee benefit plan as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), any "voluntary employees' beneficiary association"
within the meaning of Section 501(c)(9) of the Code, "welfare benefit
fund" within the meaning of Section 419 of the Code, or "qualified
asset account" within the meaning of Section 419A of the Code, and any
other plan, program, policy or arrangement for or regarding bonuses,
commissions, incentive compensation, severance, vacation, deferred
compensation, pensions, profit sharing, retirement, payroll savings,
stock options, stock purchases, stock awards, stock ownership, phantom
stock, stock appreciation rights, equity compensation, medical/dental
expense payment or reimbursement, disability income or protection, sick
pay, group insurance, self insurance, death benefits, employee welfare
or fringe benefits of any nature, including those benefiting retirees
or former employees.
"Encumbrance" means any lien, superlien, security interest, pledge,
right of first refusal, mortgage, easement, covenant, restriction,
reservation, conditional sale, prior assignment, or other encumbrance,
claim, burden or charge of any nature.
"Entity" means any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any
company limited by shares, limited liability company or joint stock
company), firm, society or other enterprise, association, organization
or entity.
"Environmental Laws" means all applicable Laws (including consent
decrees and administrative orders) relating to the public health and
safety and protection of the environment, including those governing the
use, generation, handling, storage and disposal or cleanup of Hazardous
Substances, all as amended.
"ERISA Affiliate" means any entity, trade or business (whether or not
incorporated) that is part of the same controlled group under, common
control with, part of an affiliated service group, or part of another
arrangement that includes the Company or any ERISA Affiliate within the
meaning of Code Section 414(b), (c), (m) or (o).
"Estimated Closing Date Net Assets" shall have the meaning specified in
Section 2.8.1 of the Agreement.
"Excluded Real Property" means that certain Real Property of the
Company described as Lots 1R1, 2R, 5R1, and 6R, Block 6, Midway Place
Addition, City of Richland Hills, Tarrant County, Texas [note: delete
lot sold], which shall be transferred (by dividend or otherwise out of
the Company) on or before Closing together with related debt or other
Obligations.
"Final Closing Net Assets" shall have the meaning specified in Section
2.8.7 of the Agreement.
"Financial Statements" shall have the meaning specified in Section
3.6.2 of the Agreement.
"GAAP" means generally accepted accounting principles under current
United States accounting rules and regulations, consistently applied.
"General Release" shall have the meaning specified in Section 5.1.10 of
the Agreement.
"Governmental Body" means any (a) nation, principality, republic,
state, commonwealth, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental
division, subdivision, department, agency, bureau, branch, office,
commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or
other tribunal); (d) multi-national organization or body; or (e)
individual, Entity or body exercising, or entitled to exercise, any
executive, legislative, judicial, administrative, regulatory, police,
military or taxing authority or power of any nature.
"Hazardous Substances" means any substance, waste, contaminant,
pollutant or material that has been determined by any United States
federal government authority, or any state or local government
authority having jurisdiction over any Real Property, to be capable of
posing a risk of injury or damage to health, safety, property or the
environment, including (a) all substances, wastes, contaminants,
pollutants and materials defined, designated or regulated as hazardous,
dangerous or toxic pursuant to any Law of any state in which any Real
Property is located or any United States Law, and (b) asbestos,
polychlorinated biphenyls ("PCB's"), petroleum, petroleum products and
urea formaldehyde.
"Halifax Securities" shall have the meaning specified in Section 3.24.1
of the Agreement.
"including" means including but not limited to.
"Independent Accountants" means a Neutral Accounting Firm other than
the Buyer Accountant.
"Indemnification Price" means the greater of (i) the market price of
the Buyer Common Shares on the date of payment of the applicable
indemnification claim, or (ii) the average market price of the Buyer
Common Shares over the fifteen (15) trading days immediately preceding
such date of payment.
"Insurance Policy" means any public liability, product liability,
general liability, comprehensive, property damage, vehicle, life,
hospital, medical, dental, disability, worker's compensation, key man,
fidelity bond, theft, forgery, errors and omissions, directors' and
officers' liability, or other insurance policy of any nature.
"Intangible" means any name, corporate name, fictitious name,
trademark, trademark application, service mark, service mark
application, trade name, brand name, product name, slogan, trade
secret, know-how, patent, patent application, copyright, copyright
application, design, logo, formula, invention, product right,
technology or other intangible asset of any nature, whether in use,
under development or design, or inactive.
"Judgment" means any order, writ, injunction, citation, award, decree
or other judgment of any nature of any foreign, federal, state or local
court, governmental body, administrative agency, regulatory authority
or arbitration tribunal.
"Key Employee(s)" shall mean Charles Harper, Morris Horn and L.L.
Whiteside.
"Key Employee Agreement(s)" shall have the meaning specified in Section
5.1.12 of the Agreement.
"to the knowledge of the Company and the Shareholders'" and similar
phrases means that none of the Company or the Shareholders has any
actual knowledge, implied knowledge or belief that the statement made
is incorrect. For this purpose, "implied knowledge" means all
information available in the books, records and files of the Company
and all information that any of such persons should have known in the
course of operating and managing the business and affairs of the
Company.
"Latest Balance Sheet" shall have the meaning specified in Section
3.6.2 of the Agreement.
"Latest Balance Sheet Date" shall have the meaning specified in Section
3.6.2 of the Agreement.
"Law" means any provision of any foreign, federal, state or local law,
statute, ordinance, charter, constitution, treaty, code, rule,
regulation or guidelines, including common law (including those of self-
regulatory organizations such as the American Stock Exchange).
"Loss" or "Losses" shall have the meanings specified in Section 7.1 of
the Agreement.
"Material Adverse Effect" means any state of facts, change, event,
effect or occurrence that is or may be reasonably likely to be
materially adverse to the financial condition, results of operations,
prospects, properties, Assets or liabilities (including contingent
liabilities) of the Company.
"Net Assets" means (a) the value of all assets on the Company's
balance sheet less (b) the value of all liabilities on the Company's
balance sheet, with such values in (a) and (b) to be determined in
accordance with GAAP.
"Net Revenues" shall mean revenues net of sales returns and allowances,
as determined in accordance with GAAP.
"Neutral Accounting Firm" means the Dallas, Texas office of BDO
Seidman, LLP, or if BDO Seidman, LLP is unwilling to perform as the
Neutral Accounting Firm, or at the relevant time does not qualify as an
independent accounting firm of nationally recognized standing that has
not rendered services to the Company or Buyer or any affiliate thereof
or the Shareholders, within 12 months prior to the date of the
Agreement, then the Neutral Accounting firm shall be an accounting firm
meeting the foregoing qualifications selected by an arbitrator selected
in accordance with the rules of the American Arbitration Association.
"Notes" shall have the meaning specified in Section 2.6 of the
Agreement.
"Obligation" means any debt, liability or obligation of any nature,
whether secured, unsecured, recourse, nonrecourse, liquidated,
unliquidated, accrued, absolute, fixed, contingent, ascertained,
unascertained, known, unknown or otherwise.
"Ownership Schedule" shall have the meaning specified in Section 2.6.1
of the Agreement.
"Permit" means any license, permit, approval, waiver, order,
authorization, right or privilege of any nature, granted, issued,
approved or allowed by any foreign, federal, state or local
governmental body, administrative agency or regulatory authority.
"Person" means any individual, Entity or Governmental Body.
"Proceeding" means any demand, claim, suit, action, litigation,
investigation, arbitration, administrative hearing or other proceeding
of any nature.
"Real Property" means any real estate, land, building, condominium,
town house, structure or other real property of any nature, all shares
of stock or other ownership interests in cooperative or condominium
associations or other forms of ownership interest through which
interests in real estate may be held, all leasehold estates with
respect to any of the foregoing, and all appurtenant and ancillary
rights thereto, including easements, covenants, water rights, sewer
rights and utility rights.
"Registration Rights Agreement" shall have the meaning specified in
Section 5.2.5 of the Agreement.
"Reportable Transaction" shall mean any transaction listed in Treasury
Regulation Section 1.6011-4(b).
"Restrictive Covenant Agreement" shall have the meaning specified in
Section 5.1.14 of the Agreement.
"RII" shall have the meaning specified in Section 4.4 of the Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Software" means any computer program, operating system, applications
system, firmware or software of any nature, whether operational, under
development or inactive including all object code, source code, comment
code, algorithms, menu structures or arrangements, icons, operational
instructions, scripts, commands, syntax, screen designs, reports,
designs, concepts, technical manuals, test scripts, user manuals and
other documentation therefore, whether in machine-readable form,
programming language or any other language or symbols, and whether
stored, encoded, recorded or written on disk, tape, film, memory
device, paper or other media of any nature and all data bases necessary
or appropriate to operate any such computer program, operating system,
applications system, firmware or software.
"Specified Contract" shall have the meaning specified in Section 3.14.1
of the Agreement.
"Tangible Property" means any furniture, fixtures, leasehold
improvements, vehicles, office equipment, computer equipment, other
equipment, machinery, tools, forms, supplies or other tangible personal
property of any nature.
"Tax" means (a) any foreign, federal, state or local income, earnings,
profits, gross receipts, franchise, capital stock, net worth, sales,
use, value added, bank, bank shares, mutual thrift, occupancy, general
property, real property, personal property, intangible property,
transfer, fuel, excise, payroll, withholding, unemployment
compensation, social security, retirement or other tax of any nature;
(b) any foreign, federal, state or local organization fee,
qualification fee, annual report fee, filing fee, occupation fee,
assessment, sewer rent or other fee or charge of any nature by a
Governmental Body; or (c) any deficiency, interest or penalty imposed
with respect to any of the foregoing.
"Tax Returns" shall have the meaning specified in Section 3.18.1 of the
Agreement.
"Transactions" shall have the meaning specified in the Preamble to the
Agreement.
"Transfer Tax Returns" means Tax Returns filed with respect to Transfer
Taxes.
"Transfer Taxes" means any transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest).
"Net Assets Statements" shall have the meaning specified in Section
2.8.3 of the Agreement.